Middle East and Japan LPG freight rates at new high

Freight rates to ship refrigerated liquefied petroleum gas (LPG) from the Middle East to Japan hit a four-month high this week at $46 a metric tonne, due to the limited number of vessels in the region, traders said.

This week, the Baltic Freight Index – used by LPG traders and ship operators as indicator of LPG freight rates – was up 66 cents/mt from the previous session.

The higher freight prices have also impacted Asia's LPG premiums.

"High freight prices make it worse for sellers on a cost and freight (CFR) basis... LPG prices are lagging behind," a Singapore-based trader said.

The direction of LPG freight prices for the Middle East-Japan route is likely to stay unclear in the coming days as Saudi Aramco has yet to release details of June's shipping acceptance for term-lifting. Confirmation should be released later this week. "Before Saudi Aramco's vessel acceptance everything is a blank. Some will find they are short on vessels and others will find they are not," the source, who did not want to be named, added.

Adding to limited vessel availability in the Gulf, at least five Very Large Gas Carriers (VLCC) with a capacity of 44,000/mt of refrigerated LPG have moved to markets west of the Suez in April and May.

Saudi Aramco sold five 44,000 mt-parcels of refrigerated LPG in May, of which three cargos were restricted to western ports, while trader Trafigura shipped two 44,000 mt cargoes to South America from Iran's NIOC.

Also putting pressure on freight rates are sky-high crude prices, which have pushed bunker fuel to relative highs. On Tuesday, 380 CST fuel oil prices out of Fujairah – the world's second largest bunker port – stood at $564/mt.

And in Singapore, the world largest bunker port, the ex-wharf price for the 380 CST was $563/mt.

Meanwhile, in the tanker market, Middle East spot fixtures for eastbound voyages declined sharply in March, dropping 17 per cent as Asian refinery maintenance started in various locations.

On the other hand, Middle East to the West fixtures increased by 33 per cent in March to mark the highest level since November 2007. On an annual basis, Middle East to the West spot fixtures increased 34 per cent.

Opec and Middle East sailings are estimated to have declined in April from the previous month, while Opec sailings remained steady from the same period last year.

VLCC spot freight rates on the long-haul Middle East to East route declined six per cent, while spot freight rates for the cargos destined to the West remained steady in March from a month earlier.

But as March progressed, and after the first half folded, a steady stream of cargoes emerged for April loading, which provided support for owners to lift up the market.

Additionally, high bunker prices presented owners with a good opportunity to increase spot freight rates. Despite the relatively good tonnage availability, which rose even further as some time-chartered vessels returned to the spot market, VLCC spot freight rates increased toward the end of the month.

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