Drewry: LNG Charter Rates to Remain under Pressure in 2018

Increasing vessel supply will keep LNG charter rates under pressure in 2018, despite strong growth in trade, shipping consultancy Drewry said.

Short-term outlook for LNG charter rates remains pessimistic because of the high fleet growth rate compared with demand, according to Drewry. The fleet is expected to expand by 11% because of high deliveries and low demolition activity. Low freight rates in the first three quarters of 2017 have resulted in a huge pile-up of deliveries in 2018, which will further put pressure on supply.

In 2017, 43 vessels were scheduled for delivery, while just 27 were delivered during the entire year, and 16 were deferred to 2018. Taking into account the slippages from 2017, 69 vessels, aggregating 11 million cbm capacity, are scheduled for delivery in 2018.

However, Drewry believes not all 69 ships will stick to schedule, and therefore, projects that only 45 LNG carriers, with 7.6 million cbm capacity, will be delivered. Demolitions are also expected to remain low.

High slippages of vessels from 2017, along with low demolition activity, will further add pressure on the supply side. Average spot rates are projected to remain lower than charter rates were in 2017.

The first quarter of 2018 will be weaker than the last quarter of 2017, and slide further in the second quarter on account of high tonnage availability. Charter rates will improve in the second half of 2018 as high Chinese LNG imports will absorb the excess tonnage available in the spot market.

Overall, the LNG market in 2018 will be marked by a high number of vessel deliveries, low scrapping activity, reactivation of idle fleet and strong Chinese demand.