High Freight, Vessel Shortage Hits US-Asia LPG Cargoes: Sources
Four U.S.-Asia June-loading LPG cargoes are heard to have been cancelled amid rising freight rates and tighter vessel availability, according to market participants.
The cancelled cargoes include two scheduled for early June loading on June 10-11 and June 13-14, and two for late June loading on June 25-26 and June 27-28.
Sources attributed the cancellations to a sharp rise in very large gas carrier or VLGC spot freight rates, driven by stronger U.S.-Asia LPG flows amid Middle East supply disruptions. Asian buyers have increasingly turned to U.S. barrels to replace reduced Middle East availability, tightening vessel supply and pushing freight higher.
The OPIS-assessed Houston-Chiba VLGC freight rate closed at $320 per metric ton on Wednesday, up sharply from the mid-$140s/mt range seen before the escalation of the Middle East war. Freight rates first crossed the $200/mt level in mid-April as U.S. cargo demand increased, before climbing further above the $300/mt mark in May.
Sources also noted that the recent trend of increased U.S.-Asia LPG vessels routing via the Cape of Good Hope to avoid Panama Canal congestion has reduced vessel availability. The longer Cape route has extended voyage times and slowed vessel turnaround, reducing the number of ships returning quickly to the spot market.
“Going via the Cape takes around 10-15 days longer than going via Panama. With around half of vessels now routing via the Cape, turnaround times have lengthened and buyers have difficulties getting available ships,” a trader said.
With higher freight costs, market participants said the U.S.-Asia arbitrage window is now closed.
The spread between the CFR Japan propane price and the OPIS Japan Mont Belvieu Delivered or OMBD price, which reflects the delivered value of U.S.-origin propane into Asia, narrowed to $132.40/mt on Tuesday, with CFR Japan at a premium over OMBD.
This compares with a range in the $140–$150s/mt level in early March, shortly after Middle East tensions escalated.
Traders expect further cancellations if freight remains elevated and arbitrage conditions stay shut.
“The market is likely to stay quiet going forward amid renewed uncertainty, with the U.S. and Iran still exchanging strikes despite talk of a possible peace deal. Most participants are expected to stay on the sidelines,” a trader said.
—Reporting by Cheryl Lee, clee@opisnet.com; Editing by Mei-Hwen Wong mwong@opisnet.com