Lower rates to continue to plague LPG market amid vessel oversupply

Lower rates to continue to plague LPG market amid vessel oversupply

THE overall fleet of liquefied petroleum gas vessels is forecast to expand by 16 per cent this year.

22 June 2017 - 20:00 - Update: 23 June 2017 - 00:59

An oversupply of vessels in the liquefied petroleum gas (LPG) shipping market is expected to continue over the next two years as freight rates remain low, according to new analysis by London-based maritime consultant Drewry.

Drewry's latest edition of its LPG forecast also states that the small-vessel segment, defined as 1,000-5,000 cubic metres, is the only caegory where fleet growth will be minimal, potentially leading to a recovery in rates. After increasing at a four per cent annual rate over the last three years, pressurised vessel fleet growth is expected to slow to three per cent this year, reported American Shipper.

Most vessel size segments, however, are expected to experience another year of rapid supply growth in 2017, with the overall fleet expanding 16 per cent, according to the forecast, which will continue to put downward pressure on pricing over the next two years.

Thereafter, pressurised vessel fleet growth is likely to turn negative because only one vessel will be left from the current orderbook to be delivered in 2018 and none beyond, while some vessels are scheduled to be demolished, the forecast said.

Although the improvement in rates is expected to be led mainly from the supply side, some push will also come from the demand side, according to the report, as refining capacity expands in China, increasing cargo supply for the intra-regional trade.

"As a result of slowing fleet growth, Drewry expects rates for small LPG vessels to strengthen further," Drewry senior analyst Shresth Sharma was quoted as saying, adding that time charter rates for a 3,500 cubic metre pressurised vessel is anticipated to average US$182,000 per month in 2017, an increase of eight per cent from 2016.

"As fleet growth slows further from next year, rates will continue to improve and average $210,000 per month by 2019," said Mr Sharma.




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