Drewry: VLGC Oversupply to Put More Pressure on Freight Rates

High scheduled deliveries and low demolition prospects will drive unwanted fleet growth of very large gas carriers (VLGC) in 2017 putting additional pressure on freight rates, according to shipping consultancy Drewry.

VLGC rates remain under pressure on account of ample vessel supply and weak arbitrage opportunities caused by low LPG fuel prices. With 64 additional ships due for delivery next year, fleet growth is expected to accelerate to 12% in 2017, further exacerbating the supply gut.

Shipowners are hoping that a recent revival in VLGC demolitions might help keep fleet growth in check. Two vessels have been scrapped in recent months, the first such demolitions in this segment since 2011. Moreover, the recent Ballast Water Treatment System (BWTS) regulation which requires all vessels to have an in-built BWTS or retro-fit by September 2017 or on their next survey has provided further impetus to hopes of higher scrapping.

However, Drewry believes that there is little scope for demolitions given the young age-profile of the fleet. There are just four ships in the current VLGC fleet over 30 years of age, and a further 13 of between 25 and 30 years.

“Although the average scrapping age could fall sharply in a weak market, we do not expect this to happen in the current VLGC market as there are no signs of panic demolitions yet. Therefore, we believe excess vessel supply is here to stay, which will keep rates under pressure in the next year too,” Shresth Sarma, senior analyst for gas shipping at Drewry, said.

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