Drewry: Recovery on the Horizon for VLGC Owners
- Business & Finance
The very large gas carrier sector is expected to enter the recovery cycle from the second half of 2018 amid a slowdown in fleet growth, shipping consultancy Drewry said.
2017 was one of the toughest years in the history for VLGC shipping as ample vessel supply squeezed the freight market. VLGC earnings in the spot market, on the benchmark AG-Japan route, averaged USD 12,500pd, way below the break-even rate of USD 21,000pd.
Shipowners are hoping for a better future as annual fleet growth is set to slow down from 16% in 2016-17 to a more manageable 5% over 2018-19. However, new ordering is also picking up, with seven VLGCs ordered in the first month of 2018 as owners look to position themselves for the next upswing in the freight cycle.
According to Drewry’s freight rate forecast for VLGCs over the next three years, rates would improve from this year and strengthen further in 2019-20. However, rates are unlikely to touch the highs seen in 2014-15 when the bull run was led by a sudden pick-up in propane demand from new PDH plants in China.
“Our outlook for 2018-20 suggests an average freight rate of USD 23,400pd, below the USD 28,800pd that was recorded between 2011 and 2013,” Shresth Sharma, senior analyst for gas shipping at Drewry, said.
Sharma explained that the reason for the difference between average historical and future rates is that VLGC fleet ownership has become more fragmented since 2013 as many new players entered the market during the boom period of 2014-15.
At the end of 2017, there were 62 companies in the VLGC sector, 17% more than at the end of 2013.