Spot rates for very large gas carriers (VLGCs) have surged to a multi-year high as rising US propane exports also boost earnings for smaller LPG carriers.
Shipping analysts at Fearnley Securities estimate that the Baltic Exchange's latest VLGC rate assessment translates to timecharter equivalent (TCE) earnings of about $73,000 per day.
That's the highest rate in four years, the analysts said Friday.
The Baltic Exchange Liquid Petroleum Index placed spot rates for the biggest class of LPG carriers at $78.68 per tonne on Thursday, which marks a 4.1% jump on last week for the benchmark route between the Middle East Gulf to Japan.
That's only the highest level since 16 October on a per-tonne basis, according to data from the freight marketplace.
But the Fearnley Securities TCE rate also reflects lower fuel prices, boosting earnings for shipowners.
The rate rise has come on the back end of what started out as a quiet market in eastern markets, with some added demand from Indian LPG importers before momentum picked up later on, said Fearnley Securities, the investment banking arm of shipbroker Fearnleys.
Rates softened in the west this week, but the analysts don't expect this to last.
"[The] position list for the balance of 2019 looks well short and we expect the trend to reverse and rates to strengthen as a consequence," they wrote.
More broadly, however, the strength of VLGC rates has been fuelled in part by US LPG export growth, with rising shale production resulting in higher propane output, Fearnleys Securities analyst Espen Fjermestad told TradeWinds.
Rates have also been helped by a more moderate orderbook scenario and Asian demand for US exports, analysts said.
Fearnleys Securities expects the US to pump more volumes into the market next year, boosting seaborne LPG trade.
This is expected to boost TCE rates, which could average $40,000 per day and include more spikes over the $70,000-per-day mark, according to the firm.
"By the looks of it, we think as it stands today, if you use the prevailing estimates for US shale production, we expect the market is going to balance quite well next year," Fjermestad said, though he noted it may not be evenly spread throughout 2020.
"Overall, it looks quite promising," he said.
VLGCs are not the only LPG carrier segment benefitting from a strong market.
On Thursday, Navigator Gas reported better-than-anticipated profits as rates for midsize gas carriers approached $25,000 per day.
"The better-than-anticipated results came largely from improved revenue, which was driven by demand for [Navigator's] medium-sized carriers as strong demand for VLGCs and robust LPG export volumes started to trickle down to the smaller segments," wrote Evercore ISI analyst Jonathan Chappell.
