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Middle East Gulf VLGC rates recover from multi-month low amid tighter tonnage


Persian Gulf-to-Japan VLGC rates hit six-week high

Increased tonnage demand drawing gas carriers West of Suez

AG loadings expected to pick up in H2 August

Singapore — Very Large Gas Carrier rates on the Persian Gulf-to-Japan route extended gains in the week that began July 12, with shipping sources attributing the recent recovery to a tightening of tonnage supply.

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VLGC rates climbed $2/mt from July 9 to close at $31/mt July 14, after hitting an over-15-month low to $23.50/mt on June 23, S&P Global Platts data showed. VLGC freight on the Persian Gulf-to-Japan route was last assessed by Platts at $31/mt on June 2.

According to sources, a tighter tonnage supply due to improved demand for propane West of Suez has led to vessel owners ballasting into the Atlantic to ply the Trans-Atlantic route.

Expected volumes of US LPG arriving in Europe so far in July are estimated at about 305,000 mt, data from vessel tracking software Kpler showed July 14, with nearly all of these cargoes currently bound for Northwest Europe.

Of the total, 111,000 mt will come from the US Gulf Coast and 194,000 mt from Marcus Hook on the US Atlantic Coast, Platts reported earlier. Traders are also seen offering Marcus Hook origin spot material into Asia this week, for delivery over September.

Europe's LPG demand, particularly for propane in Northwest Europe, has increased as petrochemical crackers turn to propane as a feedstock because of its substantial discount to naphtha, market sources said.

Loadings seen picking up

Demand for LPG loading out of the Middle East Gulf stayed tepid over June, as lower Saudi supply coupled with dormant buying appetite from Asian end-users kept charterers sidelined amid ample vessel supply and trader relets, market sources said earlier.

While Saudi Aramco had canceled or deferred up to 10 term cargoes for June loading, it accepted July nominations with limited or no cancellations and delays, lending some support to the Middle East VLGC market, said sources.

Additional tonnage demand was seen as both Kuwait Petroleum and Qatar Petroleum for the Sale of Petroleum Products, or QPSPP, sold additional spot cargoes for loading over H2 July to early August, traders said.

QPSPP was heard to have sold via spot tender 44,000 mt of propane loading over July 27-28, and a mixed cargo comprising of 33,000 mt of propane and 11,000 mt of butane loading over August 4-7, Platts reported earlier.

KPC, meanwhile, was also heard to have sold via spot tender a mixed LPG cargo comprising of 33,000 mt of propane and 11,000 mt of butane loading over August 4-5, Platts reported.

However, further price gains are likely to be capped, as traders have pointed out that loading activity in H1 August will likely to remain slow.

"Most buyers have chosen to nominate term cargoes with Middle Eastern suppliers for second-half August loading, to leverage on the current contango in the CFR North Asia market," sources said.

"It makes sense given the reported slow steaming and longer routing of VLGCs from the West to try and take advantage of the upward curve," said a Southeast Asian LPG buyer this week.

Rising freight rates deter traders

The recent recovery of VLGC freight rates out of the Middle East Gulf, coupled with the negative price spread between FOB Arab Gulf and CFR North Asia markets has also led to a change in buying behaviour away from the usual pricing on Saudi Aramco's monthly contract price, according to market sources.

QPSPP's last spot tender for a mixed cargo loading over August 4-7 was heard to have been awarded at a discount in the mid-$30s/mt to the Far East Index for propane and butane, FOB, instead of the usual pricing on Saudi Aramco's monthly contract price, traders said.

"The continued fall in CFR values has undermined traders confidence to bid for such cargoes given no floor has been reached. Presently, [buying ideas] are around minus $40-$50/mt range to CP, but even so traders remain hesitant to take on any risk," Gibson shipping brokerage said in a report.

"If you call it $5/mt to high single digits/mt for the mark up, it makes sense that the [QPSPP] tender was awarded in the mid-$30/mt discounts to FEI," said a trader July 14.

"Really depends on how you see freight [going forward], I don't think suppliers are making much money on the CFR deals even at those discounts," the source added.

The August Far East Index swap spread to August Saudi CP swap was notionally at minus $9/mt mid-day July 15.

Meanwhile, Indonesia's Pertamina has also bought its last two spot cargoes for July and August delivery respectively on a fixed price basis, a change from the company's previous tenders that were awarded basis Saudi Aramco's CP, Platts reported earlier.