Market analysis

The spot market strengthened in 2011 in all of Solvang’s segments. The fullyref ships benefited from a strong growth in trade of LPG and ammonia coupled with limited fleet growth. The ethylene carriers benefited from a strong increase in ethylene export from the Middle East, which allowed the market to firm despite a relatively high fleet growth.

The first three months of 2012 has turned out weaker than 2011, especially for the VLGCs while the LGCs and the semirefs have seen smaller declines. The overall fundamentals for 2012 remains positive as fleet expansion appear manageable. Seaborne volumes in LPG and ammonia are expected to expand further this year, although at a more mature rate than in 2011. Overall petrochemical trade is likely impacted by trade sanctions on Iran, although likely compensated by increases elsewhere.
 

VLGC


The VLGC spot rates rallied during the second half of the year driven by increases in Middle East export. The region accounts for approx. 80 percent of the employment for the trading ships in the VLGC fleet. In May, Saudi Arabia increased crude output to compensate for production losses elsewhere, which in turn also increased the availability of LPG for export. Startup of new LNG trains in Qatar and the completion of three new LPG export project in United Arab Emirates resulted in an overall strong trade growth in 2011.

Fleet expansion was limited in 2011 which left rates and consequently earning in the spot market to exceed the USD 1.0 million-mark by a good margin during Jul-Nov. The year ended however with declining export from Saudi Arabia as increased downstream consumption increased. Production problems and maintenance shutdowns in both Qatar and UAE added downward pressure to the rates. The fundamentals for 2012 remain promising; fleet expansion remains limited and production is likely to be brought back to capacity.


LGC


The LGC spot rates tracked VLGC rates and rallied during the latter half of the year. Following the demolition of Clipper Posh, this segment now counts 20 units. The employment for this fleet is approximately 70% from LPG and 30% from ammonia. LPG trade has generated most of the incremental demand within this segment, although also interest for modern ships for ammonia has supported the market.


Ethylene/Semiref


The ethylene market saw two “runs” in rates during 2011; one early in the year on continued active Middle East export, and the latter fuelled by a jump in long-haul C4’s import to the US Gulf. This allowed the market to absorb the 5 long-haul ethylene carriers and 10 handysize semiref ships. The orderbook of 8000+ cbm ethylene and non-ethylene semiref carriers now total 25 units compared to an overall fleet of 145 units, of which 16 are 25 years or older. The net fleet growth appears manageable for 2012, although there are mixed developments in long-haul trade. International trade sanctions on Iran that will be fully implemented 1 June is likely to lead to reduce Middle East export volumes. Some of this is likely offset by ethylene production increases elsewhere. There are also positive signs in the long-haul C4’s import to the US Gulf that could offset this decline further.
 

VLGC spot rates

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LGC spot rates

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Ethylene/Semi-ref spot rates

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VLGC fleet age distribution

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LGC fleet age distribution

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Ethylene/Semi-ref fleet age distribution

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