BW expects firm VLGC rates until dip in late 2015 on new ship deliveries

2014-09-02

Daily VLGC freight rates, which have soared to records twice so far this year, are expected to stay strong through 2014 and into next year, but are set to ease by late 2015 due to deliveries of new vessels, shipping major BW LPG said.

“Incremental supplies of LPG driven largely by US shale gas projects are being absorbed into Latin America and Asia, with the latter in particular showing continued potential for growth,” the company said in an August 26 report.

“The US-Asia transportation routes drive growth in transport distances, which combined with the additional export volumes, results in substantial tonne-mile growth. This explains the historically high spot charter rates experienced in recent months, and indicates the potential for strong rates to persist for some time to come.”

VLGC rates for the Persian Gulf-to-Japan route jumped to their first record of the year above $130/mt around end-April and to above $140/mt on July 23.

Houston-to-Japan VLGC rates jumped to their first record of the year at $295/mt on May 1 and $326/mt on August 11, Platts data showed.

BW LPG said deliveries of newly built VLGCs are progressing, but not yet outstripping the significant increases in ton-mile demand. But by late 2015, the supply/demand balance will be subject to incremental newbuild orders, though the outlook for continued growth in US LPG exports continues to be positive in 2017 and beyond, it added.

BW has placed orders to build eight VLGCs with Hyundai Heavy Industries Co. and as of June 30 had paid $131 million in installments on the contracts, it said.

The newbuildings will be delivered between August 2015 and August 2016, it said.

Shipowners and analysts said there were presently 1,195 LPG carriers, with a capacity of at least 1,000 cubic meters, totaling 21.4 million cu m. Of these, 157 are VLGCs accounting for 12.6 million cu m, they added.

They said 146 new LPG carriers, including 73 VLGCs, are lined up for delivery over 2014-16, with the majority slated to hit the market from the second quarter of 2015 through Q2 2016 for now, but as more orders come in that might change.

BW reported Q2 net profit after tax of $72.4 million, versus $34.6 million in Q2 2013, mainly on stronger time charter equivalent, or TCE, earnings and additions to fleet.

It posted net profit of $103.2 million in H1 2014, almost five times the year-ago figure of $20.9 million.

Operating revenue was $203 million in Q2, versus $98.2 million in Q2 2013, as TCE income rose to $140.8 million from $58.9 million, on improved performance from the VLGC segment resulting mainly from better freight rates, coupled with strong utilization and the Group’s increased fleet size.

TCE rates for VLGCs averaged $45,200/day in Q2 and $39,000/day in H1 2014, compared with $24,500/day in Q2 2013 and $22,500/day in H1 2013.

POTENTIAL FOR ETHANE

BW noted that there has been increasing focus on the potential development of the ethane shipping market in recent weeks, with significant new US export terminal capacity due onstream by late 2016 and confirmations that a high percentage of capacity is already met with firm orders.

At the same time, there had been statements indicating that a good proportion of those ethane cargoes will move long-haul to Asia, it said.

“This is an interesting market which will provide opportunities to organizations with know-how in VLGC transportation and low-temperature liquefaction such as that required for methane transportation,” it said.

“However, it is a long time until the first long-haul cargoes will move. Apart from the ethane transportation opportunity itself, there is good news in that VLEC construction is likely to consume shipyard capacity otherwise available for VLGC newbuilds,” it said.

India’s largest private firm, Reliance Industries Ltd., said last month it had placed orders for six Very Large Ethane Carriers from South Korea’s Samsung Heavy Industries and plans to ship 1.5 million mt/year of ethane from its US shale joint ventures to a chemical complex in Gujarat state, it said.

BW also said that given the historical strength of the VLGC market, price expectations for asset and company acquisitions have been very firm.

“Additionally, the market continues to value undelivered newbuild tonnage favorably in comparison to tonnage on the water today, which is benefiting from the historically high rates. As such, the environment is challenging for consolidation,” it said.

Source from : Platts

HEADLINES