VLGC earnings on the benchmark Middle East-Japan route have more than halved this month, with persistent tonnage oversupply amid limited cargo opportunities following the Opec output cut.
Based on Clarksons Platou’s timecharter equivalent estimates, daily earnings of VLGCs for this trade were at $10,700 per day on Tuesday, down from $22,500 at the beginning of this month.
On a per-tonne basis, the Baltic LPG Index assessed Middle East-Japan VLGC rates at an eight-month low of $25.86 per tonne on Monday. This was down 28.2% on the month.
While the stocking for the peak LPG demand season during winter has concluded, some brokers said oversupply of vessels was worsening due to several relets as Middle Eastern cargo supply fell.
At least one Middle Eastern producer has reportedly been slow in nominating vessel loadings, with some expecting the region’s exports could be affected by the Opec reduction.
“Rates have been tapering off…[to] below industry average cash breakeven levels,” Arctic Securities said in a note.
However, the US-Asia VLGC market has remained strong, with exports from the US still robust on high shale output.
According to Clarksons, the VLGC rate on Houston-Chiba route was $60.25 per tonne last Friday, compared with $59.3 on 28 December.
Data from Pareto showed the LPG price spread favoured US Gulf-East Asia cargo movement, with Mount Belvieu spot propane price at $358 per tonne and Japan’s one-month forward price at $440 on Monday.
With the differences in market strengths across regions, some VLGCs are expected to be ballasting from the Middle East to the Atlantic basin in the coming days.
“This will no doubt test rates ex-US as we head into the second half of February fixing window,” according to Clarksons. “However, this short-term pain is not without gain, as positions should then begin to tighten up again in the East and hopefully see the Baltic begin to recover once more.”
Looking forward, analysts have pointed to an increasing number of employment opportunities in the US, where LPG production continues to rise and more export projects come online.
Arctic Securities has forecast US LPG exports to reach 37.6 million tonnes in 2019, up from the 2018 level of 32.1 million tonnes.
“Volumes out of the US remain the main source of incremental [VLGC] demand, and prospects for continued growth in US LPG exports are good,” according to Arctic Securities.
