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04 October 2022 - Year XXVI
Independent journal on economy and transport policy
02:41 GMT+2
FORUM of Shipping
and Logistics


The LPG shipping market
in 2000

 
Global rise in commodity prices and freight markets

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Whilst the predominant market features of the two previous years were mergers and fleet concentration, we could describe 2000 as the year of a quasi regular state of firmer prices for most petroleum products and, to a lesser extent, a gradual rise in freight levels on all LPG tonnage segments, although more limited as compared to the oil tanker markets.

We may illustrate this situation with the following reported price quotations for the main product segments in oil, LPG and the petrochemical gas commodity markets, '

average market prices

' and with the following average freight rates basis spot voyage or average short-term time- charter equivalents for main categories of LPG carriers (such figures exclude idle time between cargoes or time-charter trading periods).

average freight rates

Obviously sporadic moves, up and down, took place all along the year in the various size categories, as is usually the case when spot or short term markets are considered, but the average trend has been gradually improving until the last quarter of 2000.

Different factors led to this strengthening in freight rates, which we were intimating in our last year's annual report, among these, the following could be highlighted :

  • A healthier economy worldwide: the World Bank and the OCDE report a world GDP growth rise of 4 to 4.5 %, whilst world trade has gone up by 12.5 % over the year 2000.
  • A global increase of oil demand facing Opec regulating moves and quota restraints, resulting into firmer oil and products prices, thereby opening new arbitrage margins.
  • The combined effects of recent mergers among oil and petrochemical "Majors", and consolidation moves which took place over the past two years among shipowners operating LPG carriers of sizes above 8,000 cbm.
  • A continued development of long-haul voyages with increased volumes on new shipping routes where the price volatility of main gas commodities such as LPG, ammonia and chemical gases allows for temporary imbalances between supply and demand and arbitrage positions.
  • A stringent control and supervision of vessels' quality on traffic between industrialised producing and consuming areas, although such control has been in force for gas carriers for a long time.
  • An overall restraint on behalf of shipowners for fleet expansion which has been rather limited since the Asian crisis in mid 1997 until 2000, especially for fully and semi-refrigerated types of tonnage.

The combined timing of the above various factors has contributed to the strengthening of the market and the upturn of freight earnings.
 

Highlights over the year

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  • The 'Erika' effect, which we cannot ignore, although being more psychological than factual for gas ships. Indeed, gas ships, naturally double-hull, have been closely followed and checked through vetting organisations well before a similar vetting system was adopted for oil tankers. Furthermore, the nature of the gas commodity transported, with a lower degree of stress and corrosion, helps to explains why no major casualty has ever occurred on gas carriers, even on old ships. Let it be this way for many years ahead !
  • Shipowners' consolidation moves resulted in a double-edged freight situation: firmer spot freight levels as opposed to trading equivalent freights on the larger size ships, depending on whether the vessel is "pool controlled" or "not".
  • Idle time, which used to be accidental and a misfortune for owners, has turned out to be a tactical element of owners approach to the freight market.
  • LPG "Majors" or traders increased share of the commercial control on ships, whether it be through longer term time-charter commitments or purely ownership control. This kind of development is a an old story in shipping and more particularly in the LPG industry where trying to find the best balance between long-term financial commitment and short-term coverage with more exposure to market fluctuations can be a difficult task on a restricted market.
  • Increased volumes of gas chemical movements partly due, as usual, to unexpected outages or planned turnarounds, mainly on the ethylene front. A general shortage of molecules in Europe and a strong demand in the USA linked with competitive prices in South East Asia, contributed to a solid rebound of the ethylene, propylene and butadiene markets.
  • Newbuilding prices which heavily decreased during the last two years (up to 30 %) have recently fuelled new orders from shipowners and "Majors", more influenced by bottom line prices than by additional tonnage requirements.

One should also note the continued interest of Japanese owners placing orders in domestic yards for pressure-type LPG carriers of sizes between 4,000 and 7,500 cbm, for delivery end-2001 / end-2002, and fixed out for time-charter periods of up to five years plus options. Such moves are partly due to the prevailing financing conditions obtainable in Japan at very low interest rates.

ANNE LAURE
 78,000 cum fully-ref., blt 2000 by Daewoo - Commissioned by her owner Geogas Shipping - seen passing Sydney Bay.

 

Situation by Ship segments:

  • VLGC (very large gas carriers): 70,000 to 86,000 cbm

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This is "the" specific size of LPG carriers, which always had and still has its own identity and direction within the LPG industry. Whether it is because this size represents some 70 % of the total LPG carried in the world, with a major share being controlled by one single Norwegian owner, or because trading such LPG vessels is closely linked to product prices fluctuations, can be a long debate. Still the VLGC market has its own logic !

2000 was a year of mixed results for shipowners. Whilst the spot freight on the traditional benchmark route Middle East Gulf / Far East increased from $27 per mt in November 1999 to $42 per mt by November 2000 (which represents a time charter equivalent of some $1.1 million), an increased percentage of idle time of up to 20 % has dramatically affected this segment and particularly Bergesen who controls a large part of this market, mainly on a fully-owned basis with a few units pooled. Such idle time has lowered the net fleet earnings per ship down to circa $575,000 monthly.

However, the situation improved towards the end of the year when the alternative employment of CPP (naphtha and occasionally jet fuel) was frequently open to generate a time-charter equivalent in excess $1.5 million monthly. This latest development is however directly linked to the oil tanker supply and the versatile CPP market which has recently reached peak levels.

The time-charter market has been reasonably active at levels reaching an average of $850,000 for a 12 to 18-month period.

On the newbuilding side, eight more units of 78,000 / 82,000 cbm have been ordered since January 2000 for delivery between early 2002 and 2004, while five ships have been delivered during the same period. Together with the orders confirmed prior to January 2000, this makes a total of 14 ships on order out of which seven ships will be delivered in 2001.

Although this size segment still suffers from over-capacity, such orders can be partly explained by LPG producers' endeavours to control their own tonnage at newbuilding price conditions near bottom levels.

lpg 24/85000 cbm
 

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This ship class has achieved much better results than last year, generated by the expansion of NH3 long-haul voyages from the Black Sea to the USA and the Far East, plus alternative opportunities in the CPP and naphtha markets and the impact of firmer markets in the larger and lower tonnage size segments.

Depending on size, age and specifications, monthly average returns reached $750,000, a 15 % increase over last year's levels. Such an upturn was however limited here as well, by idle time. No newbuilding order was reported within this segment and only one 52,000 cbm built in 1971 was sold to demolition.
 

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Mainly supported by a substantial strengthening of the ammonia market, this highly consolidated sector has registered the sharpest increase in freight level, up to 50 % on spot rates in some specific areas. This situation and the concentration of tonnage has led a few charterers and traders to further cover their shipping requirements through medium or long-term periods, sometimes up to three or five years.

However, the overall earnings of shipowners did not increase in the same proportion due to a repetitive idle-time averaging 14 % over the year.

Stringent quality restrictions on the LPG trade pushed a few older units to switch from LPG to NH3 on a permanent basis, where old upgraded ships but in good conditions are still qualified by several terminal operators. New orders were limited to two 35,000 cbm vessels for the account of Bibby Line and Geogas, both for delivery end 2002 at Korean yards.
 




Shipping and Shipbuilding Markets in 2000

I N D E X

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