Drewry: LPG Coaster Shipping to Remain Weak in 2015

Oversupply of vessels in the LPG coaster shipping market continue pushing rates below pre-financial crisis levels, according to the latest edition of Drewry’s LPG Forecaster.

“Average 12-month LPG coaster time charter rates fell almost 15% between 2007 and 2014”, said Shresth Sharma, senior analyst, gas shipping at Drewry.“And in the case of smaller vessel classes such as coasters a small change in rates can have a significant impact on operator profitability”, continued Sharma.

The abundance of supply is the result of lower than expected petrochemical plant demand rather than any surge in new orders. Given that the pressurised vessel fleet has grown by just 2% over the last three years, the supply and demand imbalance can be almost exclusively explained by weak product demand reflecting the slowing global economy, and sluggish growth rates in the Eurozone and China in particular, Drewry said.

Furthermore, smaller vessels have been largely unaffected by rising natural gas liquids (NGLs) production in the US given ship owners’ preference for larger vessels. Even to export LPG cargoes from the US to relatively close markets such as Europe, ship owners opt for comparatively larger vessels of above 12,000 cbm to maximise their economies of scale. As a result, time charter rates for 12,000 cbm semi-refrigerated vessels have also strengthened over the last year, averaging USD 716,000 pcm in 2014, up from USD 634,000 pcm in 2013.

“Given the relative weakness of the world economy and its near-term prospects, Drewry expects freight rates of pressurised vessels to remain under pressure in 2015. Demolition of older vessels may help reduce excess supply, but we do not anticipate any dramatic change to the slow pace of demolitions the market has seen in the last few years”, added Sharma.

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Posted on May 22, 2015 with tags , .

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