US-Asia LPG Cargoes Cancelled as High Panama Canal Costs Squeeze Arbitrage
U.S.-Asia LPG cargoes scheduled for August loading have been cancelled as soaring Panama Canal transit costs and stronger freight rates narrow arbitrage economics, according to market sources.
Sources identified at least four cargo cancellations for August loadings, including cargoes scheduled over Aug. 11-13, Aug. 13-14, Aug. 15-16 and late August.
Market participants attributed the moves to sharply rising Panama Canal transit costs, as increased competition for limited slots pushed auction fees above usual levels and inflated overall voyage costs.
The latest southbound special auction slot for a Neopanamax transit on Aug. 5 was heard awarded at around $850,000, according to shipbrokers. “A decent level for a Neopanamax transit would be around $100,000-$400,000. Anything above that is considered higher than normal,” one shipbroker said.
Congestion has been more severe for northbound transits, with the latest special auction slot for an Aug. 9 crossing heard at around $1.5 million.
Market participants said the higher auction fees reflected stronger competition for limited transit slots, with some pointing to lingering congestion following the Panama Canal Authority’s brief suspension of daily transit auctions for Panamax locks in late July. The suspension, which temporarily reduced daily transit capacity for regular and super Period 3 slots, was later lifted, but sources said the disruption may have created a backlog that continued to tighten slot availability.
The tighter canal conditions have also supported freight, with the OPIS-assessed Houston-Chiba very-large gas carrier freight rate closing at $275 per metric ton on Monday, up from $190/mt a month earlier. Freight began climbing in late July, with second-half July averaging $273/mt compared with $212/mt during the first half of the month, OPIS data shows.
Traders said the combination of higher canal transit and freight costs closed the U.S.-Asia LPG arbitrage, prompting August cargo cancellations.
Some market participants cautioned that prolonged weakness in the arbitrage could tighten regional LPG supply, particularly as Middle East export flexibility has also been reduced. OPIS previously reported that ship-to-ship transfer activity outside the Strait of Hormuz has halted amid renewed regional tensions, while fresh uncertainty over Red Sea shipping has disrupted Yanbu loadings.
U.S. LPG exports to Asia are estimated at 3.9 million mt in August, down from a record 4.79 million mt in July, according to Vortexa data.
—Reporting by Cheryl Lee, clee@opisnet.com; Editing by Mei-Hwen Wong, mwong@opisnet.com