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Uncertain outlook in the LPG trades

Uncertain outlook in the LPG trades

London: The strength of most shipping markets in the months ahead will depend on demand - for iron ore, coal and other raw materials in China and India, for example, and for manufactured goods exported from Asia factories to markets in the US and Europe. However, the liquid petroleum gas (LPG) business is based on different fundamentals, with its core business closely associated with supply, as well as demand - liquid petroleum gas is a by-product of crude oil production, refining and gas processing.

In a recent report, Clarkson describes the LPG business as a "mysterious segment" of shipping. Its owners - in contrast to many others - have not been enjoying super-profits carrying some of the world's most basic cargoes, as in the dry bulk market; instead, they have been shipping some of the most sophisticated products, at temperatures as low as minus 100° C, and at modest returns.

There are only 1,100 LPG tankers in total, according to Clarkson statistics, and half of them are small vessels of less than 5,000 metres_ and the fleet of very large gas carriers (VLGCs) comprising just 120 vessels. The sector demonstrated only modest growth of less than 4% p.a. in the years leading up to 2000. However, with renewed interest in LNG production, providing associated gases as by-products, there has been a spell of new investment in LPG carriers and a significant volume of tonnage is now being delivered.

Following order volumes of 1.7m metres_ in 2004, 2.9m metres_ in 2005 and 2.8m metres_ in 2006, the fleet is growing dramatically this year and next, with about 4.5m metres_ of tonnage due to be commissioned over the two-year period, according to Clarkson. However, these ships are delivering against an uncertain economic backdrop - a range of LNG projects are suffering delays and the threat of recession in parts of Europe and the US is easing crude oil demand. Yet again, and this time in the gas business, Asia could be instrumental in the future outlook for LPG operators.  [8/9/08]


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