Once a Niche Segment, LPG Carrier Market is Now A Boon for Ship Owners
Once considered a niche market for “bold” ship owners to invest into, nowadays, LPG shipping is almost mainstream and yielding quite good results. In a recent monthly analysis, shipbroker Banchero Costa said that “spot charter rates for VLGC gas carriers have rallied significantly in the first half of 2019, helped by very limited fleet growth last year and steady tonne‐mile demand growth. Benchmark newbuilding prices in August 2019 were estimated at about 71 mln USD for a 82,000 CBM VLGC, and about 16 mln USD for a 3,200 CBM semi‐refrigerated vessel. Indicative 5‐year old secondhand prices in August 2019 were estimated at about 62 mln USD for a 78,000 CBM VLGC, and about 13 mln USD for a 3,200 CBM semi‐refrigerated vessel. Indicative 1‐year timecharter rates in August 2019 were estimated at about 1,100,000 USD/month for a 82,000 CBM VLGC, and about 300,000 USD/month for a 3,200 CBM semi‐refrigerated vessel”.
In terms of tonnage supply, Banchero Costa said that “newbuilding deliveries of LPG carriers declined sharply in 2018 to just 40 units (1.4 mln CBM) from 73 units (2.0 mln CBM) in 2017, and are expected to increase only modestly in 2019 to around 44 units (1.6 mln CBM) after accounting for slippage. In the first 8 months of 2019, we recorded the delivery of 23 units, for a total of 1.2 mln CBM. Demolition activity in 2019 is expected to decrease numerically to about 19 units, from 37 units in 2018. In CBM terms we expect 0.40 mln CBM in 2019 from 0.84 mln CBM in 2018. In the first 8 months of 2019, we recorded the demolition of 11 units, for a total of 0.16 mln CBM”.
The shipbroker added that “net fleet growth for the LPG carrier fleet as a whole is expected to increase slightly to about +4% y‐o‐y in 2019, up from 2% in 2018. The strongest growth will be seen in the VLGC (70,000+ CBM) segment, expanding by a net +5% y‐o‐y, from a very low +2% in 2018. The 1,000‐12,999 CBM fleet, on the other hand, will remain mostly flat on last year’s levels. Contracting activity has been moderate so far this year. In the first 8 months of 2019, 28 LPG carriers were reported contracted (excluding backdated Tier 2 contracts), for a total of 1.06 mln CBM. This included 11 VLGCs (0.9 mln CBM). The demand outlook remains positive: China’s LPG imports increased by 6.4% y‐o‐y in the first 8 months of 2019, to 16.4 mln tonnes, whilst India’s imports increased by 11.0% y‐o‐y in the first 8 months of 2019, to 13.9 mln tonnes”, Banchero Costa noted.
Meanwhile, in terms of demand, Banchero Costa said that “China and India will remain drivers of LPG imports, but China at a slower pace China stood as the largest LPG global importer in 2018, accounting for 18.8 mln tonnes and reaching a yearly growth of 2.9%. But imports grew at a slower pace last year compared to 2017, when China’s LPG imports increased by 14.9% to reach 18.3 mln tonnes, according to data from the General Administration of Customs (GACC). The slower growth of Chinese LPG imports was highly affected by the trade war with the U.S. On August 23, 2018 China imposed additional 25% tariffs on imports of U.S. LPG, together with several other petroleum products, as part of its retaliation measures against duties on Chinese imports. If in 2017 the States represented the second largest source of Chinese imports with 3.6 mln tonnes (18.7% of total volumes), last year imports fell to 1.6 mln tonnes (8.6%). As a result, China’s imports were mainly sourced from Middle East countries such as the UAE, Qatar and Kuwait, which accounted for around 32%, 17%, and 12% respectively in 2018. In 2019, China’s LPG trade will likely suffer again from the Sino‐American tariff dispute and, according to S&P Global Platts, the country’s apparent demand is expected to grow 4% in 2019, compared to 8% of 2018”.
The shipbroker added that “on the other hand, new PDH projects are set to support Chinese LPG thirst this year. In addition to the eight existing PDH plants, with a processing capacity of around 5.5 mln mt/year and propylene production of 4.6 mln mt/year, an additional propylene production of 1.7 mln tonnes will likely come from three new PDH plants, all scheduled to start up this year, according to Platts. After China, India was the second largest LPG importer last year. According to the Petroleum Planning & Analysis Cell (PPAC), India imported 10.57 mln tonnes during the first 10 months of the financial year 2018/19, and is expected to reach 12 mln tonnes by its end, as announced by the Oil Minister Dharmendra Pradhan. The growing LPG demand was underpinned by the Government “Pradhan Mantri Ujjwala Yojana“ programme that, as per its latest extension of December 2018, aims to provide free cooking gas (LPG) connections to all poor households of the country. In South Korea several steam crackers were down for maintenance at the beginning of the second calendar quarter of 2019, limiting import demand. However, with several cracker expansions, propane consumption in Korean steam crackers is similarly expected to rise in the latter half of the year”, Banchero Costa concluded.