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LPG freight rates lower on China’s tariffs

LPG freight markets took a hit as China’s finance ministry confirmed that LPG was among the list of 106 US goods that could get hit with tariffs up to 25%.

The growing bilateral trade in LPG, with the US a net exporter to China’s petrochemical and residential markets, helped fuel the very large gas carrier (VLGC) market through 2014 and 2015.

But the market weakened substantially over the last two years due to vessel oversupply and more limited trading opportunities.

Now with the potential that tariffs will make US LPG more expensive and VLGCs will have to ballast away from the US to the Middle East to source cargoes, freight markets are feeling the impact.

The Baltic Exchange’s index of spot rates for VLGCs from the Middle East-to-Japan fell to just over $23 per metric tonne, the lowest since last September.

Paper markets also weakened in response to the drop in spot rates. The Baltic Exchange’s forward assessment for spot rates in the second quarter fell to an average of $25.67 per metric tonne.

The one positive is that US prices for LPG also fell approximately 5% to around $361 per metric tonne, down from $382 per metric tonne. Lower US LPG prices may be able to mitigate some of the damage from tariffs and open more trading opportunities to other importers.

US-listed equities including shipping were overall weaker for the day on concerns about the tariffs’ impact on the US economy.

Navigator Holdings fell 4% to $11 per share in late afternoon trading. Maxim Research analyst James Jang says the sell-off is unjustified as Navigator’s mid- and handysize tankers do not transport LPG to China as do VLGCs.

Among US items facing tariffs, China is including plastic products such as film and sheets. Jang says China could boost its own production of such products with greater imports of ethylene, which would actually benefit Navigator.

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