The latest LPG report from DNB Markets pointed out that “high fleet utilisation is not a sufficiency condition for high rates”, and the report maintained that “the risk of a secular decline in LPG transportation demand is exaggerated.”
During the first half of 2016, rates fell at a considerable pace due mainly to a contracting price spread, rather than low fleet utilisation. The first six months saw US propane inventories drew more than normal, leading to appreciating US propane prices. At the same time there was a temporary surplus propane in Asia that triggered discounts to propane prices parity to crude prices, the report explained.
DNB Markets expected the propane price differentials to normalise which should lift VLGC rates despite still-declining fleet utilisation from 2016 into 2017.
“Although high fleet utilisation remains a necessity condition for ‘super profit’ in shipping, we do not believe it relate deterministic to rates; despite lower fleet utilisation we expect rates to increase in 2017,” DNB Markets said.
The report also forecast demand growth of 10% and 7% and fleet growth of 11% and 3% in 2017 and 2018, respectively, yielding fleet utilisation in the mid/high 80%.
“The forward market for crude and propane prices point to a VLGC rate ceiling of $50,000-80,000 a day, which could make our increased VLGC spot rate estimates of $23,000 a day (up from $20,000 a day) and $29,000 a day (up from $27,000 a day) for 2017 and 2018, too conservative,” the report said.
The US LPG exports are expected to increase to 36.7m tonnes in 2017 from 29.8m tonnes this year, and further to 40.8m tonnes in 2018.
“We still assume growth in export volumes for the rest of the world in 2016-2018,” the report said.
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