Viewpoint: Freight headwinds on US LPG trade continue

Market: LPG
29/12/22

US exports of LPG will continue to face headwinds throughout the first half of 2023 as shipping delays that stymied spot trading and narrowed netbacks to Asia and Europe during much of the fourth quarter are likely to continue.

Higher freight costs and delays at the Panama Canal curbed buying interest for incremental spot cargoes of LPG out of the US in the fourth quarter, cutting spot terminal fees on the US Gulf coast to an average of 5.3¢/USG during the quarter from 6.2¢/USG a year earlier. This occurred even as the restart of PDH units in China, where Covid-19 precautions had curbed buying interest for propane during the summer, bolstered delivered prices on the Argus Far East Index (AFEI) to $747.25/t on 23 November, the highest since July.

The US shipped 5.22mn t of LPG in November, up from 5.1mn t a year earlier, according to analytics firm Vortexa. The bulk of these shipments went to Japan, China, and South Korea, which together accounted for 44pc of exported volumes, with shipments to Mexico and Sweden accounting for another 7.6pc and 3.9pc, respectively.

As destinations in Asia account for the bulk of US exported volumes, the US market is vulnerable to logistical bottlenecks in transportation to the region. VLGC freight on a Houston-Chiba basis, the bellwether route for shipments between the US and Asia, rose as high as $208/t during the first week of December as delays along the Panama Canal stretched to an estimated 20 days northbound and 23 days southbound that week. Long waiting times at the canal tightened availability for vessels in December and into January, keeping spot freight rates elevated.

While canal delays eased somewhat in mid-December with southbound delays falling to eight days, uncertainty over delivery dates into Asia kept many prospective buyers of US spot cargoes on the sidelines, with mostly term volumes moving even as the propane arbitrage versus the AFEI remained open on paper.

Next year, the delivery of newly built VLGCs could help ease freight costs.

BW LPG, which operates a fleet of 38 VLGCs, many of which it owns, said in November that at least 19 new VLGCs are scheduled to be delivered globally in 2022, with another 45 expected for delivery in 2023 and an additional 12 in 2024. However, at least 60 vessels are scheduled for drydock maintenance in 2023, the company said. In addition, ongoing delays at the Panama Canal, increases in volumes produced out of the US and Middle East and likely slower ship speeds are expected to reduce vessel availability.

The Singapore-based shipowner estimates VLGC loadings out of the US will increase by 5mn t in 2023 to 53mn t. In the Middle East, VLGC shipments are forecast to increase by 2mn t to 37mn t next year.

By Amy Strahan

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