The Very Large Gas Carrier (VLGC) freight rates started to recover towards the end of the first quarter as U.S. consumption reverted to seasonally lower levels pushing U.S. LPG prices down, widening the geographical LPG price arbitrage between the U.S. and the Far East.
According to BW LPG, the owner and operator of liquid petroleum gas (LPG) vessels, the recovery in VLGC freight rates was further strengthened by two occasions of fog and a temporary closure of the Houston Ship Channel due to fire and chemical spills.
For 2019 we are optimistic that average VLGC rates will improve from the 2018 average of US$17,300 per day to a level above our cash break-even levels. This is supported by sustained U.S LPG exports growth and incremental volumes from key loading areas such as Australia, Canada, U.S. East and Gulf Coast.
"However, we expect that increased demand for VLGC’s from growing exports will in part be offset by a high level of newbuild deliveries and VLGC rates will also depend on the development of geographical LPG price arbitrage, positioning of vessels and US terminal capacities," said BW LPG.
"Longer term we maintain our view that sustained U.S. LPG production growth and no further new build orders remain key to a balanced VLGC market," it added.
The average benchmark Baltic route for VLGCs averaged US$29.8 per ton or US$15,000 per day in Q1 2019.
In the first quarter, global waterborne LPG trade reached 25.2 million tons, 14.8% growth year over year. Total waterborne LPG trade via VLGC reached 18.6 million tons in Q1 2019, 17.0% growth year over year.