A rollercoaster winter for LPG shipping

The Panama Canal restrictions, stemming from drought conditions since August 2023, significantly benefited LPG shipping as VLGCs were forced to take longer routes. This phenomenon led to constrained vessel supply, subsequently raising the rates, albeit for a short term.

Spot rates for VLGCs peaked at $240 per tonne on the US-Japan benchmark and $153 per tonne for the AG-Japan route. In response to the Red Sea situation, the Panama Canal authority halted additional transit cuts and raised the daily limit from 22 to 24. This decision benefited VLGCs, allowing more vessels to utilise the Panama Canal.

Unexpectedly, the increased use of the Panama route resulted in a surge in vessel availability, particularly in the Middle East. Simultaneously, ballast vessels utilised the Cape of Good Hope to travel to the US.

In the US, an Arctic freeze disrupted production infrastructure, coupled with rising domestic demand, causing Mt. Belvieu prices to surge. In Asia, the effective shutdown of the Panama route created chaos in LPG supply, leading to dwindling stock availability and subsequently raising LPG and ethane prices. The surge in LPG prices compelled petrochemical operators to reduce their operating rates to below 60%, impacting the commodity’s demand.

Consequently, the weakening US-Asia arbitrage increased uncertainty and reduced vessel fixtures in the West of Suez region, resulting in a significant decline in VLGC spot rates. This decline was so pronounced that VLGC earnings fell below their daily vessel operating costs.

Read the detailed story in our latest LPG Forecaster.