The LPG shipping trade will continue to grow at a healthy pace on the back of strong Asian demand, but fleet growth will outpace it, keeping rates under pressure in 2017, according to the latest edition of the LPG Forecaster, published by global shipping consultancy Drewry.
2016 was a tough year for LPG shipping with rates coming under pressure across all size segments. 2017 is expected to be no different with the fleet set to grow by another 16%, on top of the 17% expansion seen last year.
Asia-Pacific countries have been the major drivers of the LPG trade for several years, and imports to this region have grown at a robust rate of 12% annually over the last four years.
Drewry believes the region will continue to be the major driver of future LPG trade as a vast section of the population still does not have access to clean-burning LPG fuel. The LPG trade is forecast to grow at around 5% pa over the next four years.
The mismatch between fleet and trade growth will further squeeze LPG rates in 2017. Drewry expects rates for all LPG vessel segments, except the small coasters, to decline as fleet growth will be too great for the market to absorb. The strongest fleet growth will be registered in the MGCs segment at 35%, followed by the Handy-Size and VLGC segment, where the fleet will expand at 23% and 16% respectively in 2017.
Given the widening supply-demand balance, Drewry remains bearish on all the above LPG vessel sectors and expects rates to fall further in 2017.
“Currently, the LPG market is flooded with excess vessel supply but from 2018 fleet growth will slow down. This indicates a good long-term outlook, however we expect only a modest recovery in rates in 2018 as the market will require about two years to regain its balance,” commented Shresth Sharma, senior analyst for gas shipping at Drewry.