Vessel oversupply will persist in the LPG shipping market for the next two years, keeping freight rates under pressure across most size segments.
However, the small vessel segment is the only category where fleet growth will be minimal, leading to a recovery in rates, according to shipping consultancy Drewry.
Most vessel size segments are expected to witness another year of rapid supply growth in 2017, with the overall fleet forecast to expand by 16%. This will keep freight rates under pressure over the next two years.
However, the small LPG vessel segment (1,000-5,000 cbm) will be the exception where fleet growth will be minimal and rates are expected to improve. After growing at an annual rate of 4% over the last three years, pressurised vessel (p/r) fleet growth will slow to 3% in 2017. Thereafter, p/r fleet growth is likely to turn negative as only one vessel will be left from the current orderbook to be delivered in 2018 and none beyond it, while some vessels will indeed get demolished.
Although the improvement in rates will mainly be led from the supply side, some push will also come from the demand side as refining capacity expands in China, increasing cargo supply for the intra-regional trade.
“As a result of slowing fleet growth, Drewry expects rates for small LPG vessels to strengthen further. We anticipate time charter rates for a 3,500 cbm p/r vessel to average USD 182,000 per month in 2017, an increase of 8% from 2016. As fleet growth slows further from next year, rates will continue to improve and average USD 210,000 per month by 2019,” Shresth Sharma, senior analyst for gas shipping at Drewry, said.