The Drewry LNG Shipping Equity Index increased 26.4% YTD (as of 27 June 2024), outperforming the S&P 500, which was up 14.9% during the same period. Drewry’s index was mainly supported by the surge in Nakilat and Golar LNG stock prices, despite the fall in Flex LNG stock price. Nakilat LNG stock mainly benefited from the order win of 25 conventional LNG vessels and 9 QC-Max LNG vessels from QatarEnergy, while the share price of Golar LNG was supported by increased interest from potential buyers for its FLNG solution. On the other hand, the stock of Flex LNG was weighed down mainly by the US government’s temporary pause on new LNG export projects and relatively softer LNG shipping spot rates.

In 1Q24, Nakilat’s revenue increased 1.2% YoY to USD 306mn (QAR 1,133.5mn) and net income rose 6.1% YoY to USD 113.3mn (QAR 419.9mn) whereas Flex LNG’s adjusted EBITDA contracted 2.6% YoY to USD 70.6 mn due to lower revenues (-2.4% YoY) and higher vessel operating expenses (6.2% YoY). Meanwhile, Golar’s adjusted EBITDA slid 24.4% YoY to USD 63.6mn, mainly due to lower vessel management fees and reduced charter revenues.

LNG spot shipping rates increased in June mainly driven by tighter tonnage availability and robust LNG imports from Asia, especially China and India, and also firm Asian demand. The recent EU sanctions on Russian LNG in EU ports to be imposed from March 2025 may lead to slight changes in trade patterns as Russia will look for alternative routes to ship these LNG cargos to Asia. Moreover, increasing US-Asia trade will further support the rates this year, with COGH being the preferred route over Panama and Suez until at least next year.

Stock prices of LPG companies under our coverage fell in June as freight rates declined due to subdued LPG demand, rise in vessel availability and unfavourable price arbitrage. However, on a YTD basis these prices increased due to robust 1Q24 performance by companies despite weak freight rates. The LPG Shipping Equity Index declined 9.0% in June (as of 27 June) but is still up 14.3% YTD.

VLGC rates have been falling because of increasing vessel availability as the number of vessels transiting the Panama Canal has inched up. While laden vessels have been transiting the canal, ballast vessels are transiting the Cape of Good hope, partially offsetting the rise in vessel availability. Vessels will also be forced to idle with the approaching hurricane season in USG, increasing their availability and thereby depressing VLGC spot rates further.

Meanwhile, the price difference between buying and selling LPG in different regions (arbitrage) has narrowed which has further dampened the market. This can be attributed to falling LPG prices in Asia, particularly in India. In anticipation of the elections in India, the country stockpiled LPG, which led to a significant drop in imports in June, impacting Asian prices.

Operating rates for PDH plants in China were low in 1Q24 but are now rising which is in turn increasing the demand from the country and partially offsetting the fall in freight rates.

Source: Drewry Maritime Financial Research