The VLGC market will navigate a complex landscape in 2025, shaped by a mix of positive and negative factors, such as robust LPG trade and ample fleet supply, which will take rates below 2024 levels. This market will be characterised by surplus vessel availability despite fewer deliveries next year, limiting any potential upside in rates.Petchem demand recovery wanes

We had previously forecast a recovery in petchem demand, which is now likely to be delayed due to the ongoing headwinds in the petchem industry, with persistent negative margins and poor petchem economics. This has postponed capacity build-up.

Geopolitical tensions and waning Chinese economic growth keep us cautious on major demand recovery, especially in China, while weak downstream demand and low PDH operating rates could result in the cancellation of new PDH plants – only three units are scheduled to start operations in 2025, down from seven in 2024 and eight in 2023, which can have a ripple effect on LPG shipping as China commands the largest share of LPG imports.

US terminals are expected to reach capacity, limiting growth until new capacity comes online later in 1H25, particularly at the Nederland Orbit terminal.

Broader picture and outlook

We believe tensions in the Red Sea will continue in 2025, with no near-term resolution likely. However, if the situation improves, it will have negative repercussions for LPG shipping as shipments from the Middle East to Europe and the US to Asia will resume via the Suez Canal, reducing the current higher tonne-mile demand resulting from transits via the COGH.

With Trump’s re-election, stricter sanctions on Iran are expected, which can alter trade patterns—especially denting LPG trade between China and Iran. This will be a positive for LPG shipping as China will source more LPG from the US, adding to the tonne-mile demand (given that no US-China trade war occurs).

LPG trade showcases positive signs

We are upbeat about LPG trade and expect it to grow 2.3% in 2025, supported by resilient Asian petchem and residential demand, alongside increasing LPG supply from the US and the Middle East.

Moreover, the EU’s embargo on Russian LPG will boost European seaborne imports – altering trade flows and increasing the continent’s reliance on US supply. Meanwhile, any production setbacks at Norwegian plants will also translate into more US shipments to Europe.

The tale of two commodities: Ethane and ammonia

Ethane trade will remain a bright spot for LPG shipping as its trade is expected to grow in 2025 since it offers a high positive margin against naphtha and propane as a petchem feedstock, favouring production economics. With this, we expect VLEC fleet to expand with the addition of 10 VLECs in 2025.

Moreover, the increasing emphasis on ammonia as a cleaner fuel will boost its trade, which is projected to grow 1.9% in 2025. This, along with the expected growth in clean ammonia trade, will support new VLAC orders. However, fleet growth, with 58 VLACs scheduled to be delivered between 2026 and 2028, will outpace trade growth due to insufficient production of clean ammonia. This will compel VLACs to operate in the LPG market, further exacerbating vessel oversupply.

Conclusion

In a nutshell, LPG shipping is poised to battle overcapacity and delayed recovery in petchem demand. However, some positives, including:

• Increased LPG demand and robust LPG supply,
• VLGCs transiting via COGH over Panama and Suez Canals, and
• Stricter sanctions on Iran’s and EU’s embargo on Russian LPG, leading to more US shipments to Asia, which can counterbalance the oversupply conditions, bringing some respite to LPG shipping.

Source: Drewry