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VLGC dry dockings through Q4 to soften downward impact of newbuilds on freight rates

Dry docking activities of very large gas carriers are expected to last through Q4 2021 that could soften the downward trend of freight rates impacted by newbuilds, shipping sources said.

One shipping source said around 15 VLGCs are scheduled for dry docking in Q4, including vessels needing retrofits. The number could be higher as some ships that are due for dry docking in Q3, could spill over into Q4, he added.
Other shipping sources had earlier estimated as many as 90 VLGCs were slated for dry docking this year.

Another shipping source said that so far around two-thirds of those, estimated at 60 vessels, have completed their program.

For the rest of the year one-third is due, so around 30 would be due for dry docking in Q4. As more than a handful of these would be retrofits, this could normally take longer than a standard drydock, the source said.

But the first source said: “I don’t think we will have as many as 30 ships in Q4, think more like 15-ish including retrofit ships.”

In July and August, five vessels were at shipyards in China and Singapore, according to Kpler data.

Shipping brokerage Fearnleys said in a report, 392 VLGCs are being built over 2020 to 2024, of which 372 vessels are for trading purposes.

Out of the 2020-2024 newbuildings planned, 326 are expected by 2021, of which 325 are trading ships, the report added.

Volatile freight

VLGC fright rates on the key Persian Gulf to Japan route have been volatile in recent months, rising to a four-month high at $64/mt on May 18, before sliding to a four-month low at $33/mt July 13, S&P Global Platts data showed.

After a brief recovery to $47/mt on Aug. 13, rates trended downwards again towards $36.5/mt this week, a two-month low, Platts data showed.

But Fearnleys was optimistic that the freight market would “firm in the coming months.”

The brokerage pointed to higher demand from the East of Suez and increased Middle East LPG output following firm oil prices, together with strong US exports, which are likely to grow volumes in Q4, as well as one third of the drydocking schedule still to be completed.

Fearnleys said that with a balanced VLGC orderbook and the hopes of a recovery in the global economy from COVID-19, it expects a super strong 2022 for the VLGC space, as Asian demand begins to increase.

“We are likely, with the tight oil supply, to see firm prices East of Suez both for oil and LPG. This is likely to widen the arbitrage. However, this will ultimately depend on US production and storage levels.”

Fearnleys also pointed to congestion at the Panama Canal, which it expects will increase, leading to more frequent longer routing.

“Exports from the US, which has grown from single digits at the beginning of last decade, and now staying firm at around 50% will also mean more ton miles in general, and volumes and ships being more prone to weather and congestion situation in and around US Gulf and Panama. We also believe that receiver-congestion at the main discharge hubs could increase in size with increasing imports not being met by developed infrastructure.”

Supporting the view on improved VLGC demand, Poten & Partners said in a report the average waiting time at the new locks in the canal doubled from around five days for ships without prebooked slots in H1 2020 to around 10 days in H2 2020.

Year-to-date waiting times have averaged more than 12 days for vessels without prebooked slots, it said, attributing this to a significant increase in container and LNG vessel traffic through the new locks.

The first shipping source, however, has a more conservative outlook on freight.

“Even as dry dockings in 2021 have been quite active, this has not helped much on freight rate, so don’t see it will have much effect in Q4 either,” he said.

“Ras Tanura to Chiba rates have been sliding due to a lack of activity in September and more trader relets appearing in the market.”

Over January to mid-September 2021, VLGC rates averaged $50.37/mt, slightly below $52.84/mt in the same period last year, Platts data showed.

“The September market ex-AG looked somewhat good in the first half, as Indian enquiries rushed out in the market, but second half September has been quiet,” the shipping source added.

Source: Platts

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