Rates in the VLGC sector are coming under pressure due to an increasing tonnage list and production cuts.
VLGC spot rates fell another 10% last week, compared to the previous seven days, and Cleaves Securities head of research Joakim Hannisdahl is forecasting earnings dropping to operating expenses levels in the second half of the year.
He blamed recent Opec+ cuts and an "expected rout" in US shale production having an impact on LPG exports.
Cleaves retains buy ratings on shipowners Avance Gas and BW LPG, however, as their share prices "reflect this and more already".
Fearnley Securities pegs VLGC rates towards $60,000 per day, still better than at this point of the year in any of the previous four years.
The Norwegian investment bank said that due to weather conditions in the Pacific and delays both there and in the Atlantic, several vessels open for the last 10 days of May out of the US Gulf "have turned into June ships".
The company counts 30 fixtures from the US Gulf in May, with another few cargoes outstanding, which leaves a pretty balanced shipping market for the time being, it added.
Summer woes ahead?
But analysts Espen Landmark Fjermestad, Peder Nicolai Jarlsby and Ulrik Mannhart said for June "it is a different story".
There is a long vessel list through a combination of relets and owner-controlled vessels, which is likely to add pressure on rates in the short term, they added.
"Another factor is naturally the potential effects shutdowns on production will have on pricing, though inventories can certainly be utilised in the interim," the analysts said.
Fearnley expects shrinking export volumes from the US Gulf in 2021, "which doesn’t seem to far-fetched given recent production numbers/estimates".
In the previous week, there was negative production year on year for the first time since 2017, and April production estimates are presently nearly 15% below corresponding figures for January 2020.
"For the time being, arbitrages remain unworkable for most market players, though committed volumes are likely to contribute to volumes still being lifted," Fearnley said.
In Asia, the market has been "uneventful", with the only activity being a tender from Australia, Fearnley added.
Quieter in Asia
Last week was busier, as many players had fixed well in advance of their "standard" fixing window, the company said.
It predicted a quiet period now, with vessel supply in balance due to only owner-controlled tonnage being available.
Last month, Covid-19 lockdowns in India boosted demand for LPG imports for cooking fuel, offsetting declines seen in other regions like China and Europe, broker and consultant Poten & Partners said.
Poten analyst Zahid Afzal, speaking in a webinar on the impact of the global pandemic on the LPG market, said the Indian government’s move to supply three LPG cylinders to millions of subsidised households during lockdown has significantly increased demand for LPG and imports.
In addition, Indian LPG production is expected to decline as refiners cut run rates on the back of a sharp drop in transportation fuel demand.
Afzal said Poten estimates that 60% of India’s LPG demand for 16m tonnes in 2020 will need to be imported, which is an increase of 11% on 2019.
