Markets - US LPG exports and Suezmax rates soar

Nov 21 2014

Thus far this year, US export LPG demand has recovered from a downturn in 2013, mainly due to the weather.

US LPG exports totalled 4.1 mill tonnes during the third quarter of 2014, up 28% on the same period last year, registering a record high of 1.5 mill tonnes in July.

Much of this was destined for the Asia/Pacific region, which accounted for 20% of total US exports in 3Q14, up from 19% last year. This has been reflected in rising VLGC spot rates, which averaged $115 per tonne in 3Q14, a rise of 55% on the same period in 2013.

Rising exports were fuelled by the expansion of Targa’s Galena Park terminal in Houston where a 50% rise in capacity came on stream ahead of schedule. However, future export demand will be driven more by domestic weather conditions.

Shresth Sharma, Drewry’s LPG shipping practice analyst.explained: “Climatic conditions in the coming winter will determine how much LPG is consumed in the US. If the weather remains clear in the coming quarter, crops could be dried in the sunlight and less LPG will be used for heating. However, if the temperature drops to last year’s levels, increasing demand from both sectors could curtail exports, and hence the LPG shipping trade.”

LPG exports are very dependent on the severity of the North American winter, Drewry said.

In 2013, a shortage of propane in many areas of the US led to a steep price rise, closing the price differential between US exports and the rest of the world. This caused a large drop in export demand with many cargo cancellations.

Demand for the first quarter in 2014 was 10% lower than that of the fourth quarter of 2013.

“Although the use of LPG in residential heating in the US has been declining because of abundant natural gas, 14 mill tonnes of LPG is consumed every year for domestic heating in addition to 2.2 mill tonnes for crop drying,” said Sharma.

Drewry also revealed that its All Earnings Index, which covers the main bulk shipping markets, jumped 53% in October to stand at 200 points primarily on the back of large gains in the tanker sector.

Suezmaxes registered a huge 400% gain on West Africa-US East Coast routes as oil prices fell and demand for imported oil picked up in the US (see below).

The October recovery in earnings followed two consecutive months in which the index slumped 32%, caused by declining earnings by tanker and LPG carriers. The index is an average of timecharter earnings for drybulk, tankers and LPG markets, weighted according to estimated market share.

“Near term, activity will remain strong in the tanker market on a seasonal increase in crude demand,” said Drewry’s lead bulk shipping analyst Rahul Sharan. “However, looking further ahead supply disruptions associated with civil unrest in Iraq and Syria, as well as slackening economic growth in China risk adversely impacting cargo demand.”

In the Suezmax segment, Herbjørn Hansson, chairman & CEO of Nordic American Tankers (NAT) said that the recent drop in the oil price was positive for world tanker business.

In a letter to the company’s shareholders, Hansson said that the Suezmax market is strong at the moment and that the upswing in tanker rates in the recent past may have been influenced by the decrease in the oil price.

“We believe that there are positive signs in the market for Suezmax tankers. With this letter I wish to make it clear that a lower oil price is contributing positively to our business beyond the effects of changing trade patterns and constrained Suezmax tanker supply growth. We remain cautious as always but we believe we see some bright spots on the horizon,” he explained.

In a note, Platts said that the cost of sending 130,000 tonnes crude oil cargoes (Suezmax) from West Africa to the UK Continent and Mediterranean surged to a six-year high, as a dwindling tonnage list struggled to accommodate high levels of inquiry from charterers.

Freight rates on the WAF-UK/Continent and WAF/Mediterranean routes were both assessed Worldscale 42.5 higher on Wednesday at WS152.5. On the WAF-UK/C route, this equated to $30.13 per tonne, the highest mark recorded since a $31.66 per tonne assessment on 4th August, 2008.

On Wednesday, there were two ships put on subjects at WS152.5 for WAF-UK/C/M voyages, while another vessel was put on subs at WS170 to lift a 130,000 tonne cargo from Nigeria into land-based storage at Saldanha Bay in South Africa.

Sources told Platts that although the position lists remained tight in WAF, rates were unlikely to be sustainable at these sort of levels for long. “There might be a bit left in this market, we might see a couple more fixtures at these kind of levels before charterers take stock of the market and start to hold back their stems. We’re at the type of levels where the market should re-adjust. It’s a question now of whether the shipowners will push for more or cash in now,” a shipbroker said.

Also working against any longevity in the current high rates in WAF was the fact that charterers have begun to look to VLCCs to transport Suezmax stems. Two charterers were thought to have taken VLCCs at WS72 and WS75 for WAF-UK/C voyages in the second week of December.

In the charter market, timecharters were few and far between on brokers’reports.

Trafigura was believed to have fixed the 2007-built LR1 ‘Horizon Diana’ for 12 months at $16,000 per day, while Koch was thought to have taken the 2012-built VLCC ‘Houston’ for 12 months at $30,500 per day.

In the S&P sector, the 1998-built small Handysize’ Cape Blanc’ was reported sold to unknown interests for $9.2 mill.

Knutsen NYK Offshore Tankers (KNOT) was thought to have purchased the 2003-built shuttle tanker Grena’ for a healthy $45 mill.

The Norwegian shipping company also held a naming ceremony for a new shuttle tanker on 12th November.

The shuttle tanker, being built at Cosco Zhoushan Shipyard, was christened ‘Raquel Knutsen’, NYK, which owns a 50% share in Knot, confirmed.

She will be delivered to Repsol Sinopec Brasil and will be chartered for a maximum 15-year period to ship crude oil located off Brazil.

The 152,000 dwt Suezmax shuttle tanker is equipped with a Class 2 dynamic positioning system and a bow-loading facility.

Elsewhere, the elderly 1996-built MR ‘Chinook Maiden’was said to have been committed to Chinese interests for between $7 and $9.2 mill. 

Brokers reported the sale of the 1997-built VLCC ‘Overseas Equatorial’ to Rimao Shipping for $22 mill. She is thought to be due for a special survey drydocking soon and is earmarked for a conversion project.

Whether she is a replacement for the OSG VLCC reported as on subjects for a conversion project last week was unclear as this newsletter went to press.

Eships has sold the 2005 Turkish-built IMO II 8,000 dwt ‘Eships Bainunah’ to the Manjasa group for whom she had been operating under a charter.

She is due to join Manjasa in January next year under the name of ‘Atlantic Sprinter’ and will fly the Maltese flag.

“The tanker fits perfectly into our West African operations, where the Monjasa Group sold a similar sized vessel, the ‘Energizer’ built in 1996, earlier this year,” said Monjasa partner Anders Østergaard. “Further, it fits the overall strategy of expanding our business by organic growth and prioritizing a young and modern fleet.” 

Reported as leaving the fleet was the 1992-built LR1 ‘Katerina 1’ thought sold to unknown interests on the basis of ‘as is’ Mumbai.  The Chinese controlled 1993-built Panamax tanker ‘Ming He’ was thought sold to local breakers. 

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