OREANDA-NEWS. Shipping consultancy Drewry expects shipping rates in the LPG sector to fall in the second half of 2016 because of an extensive Very Large Gas Carrier (VLGC) orderbook that will see the global fleet grow faster than demand.

In the latest edition of LPG Forecaster, Drewry said VLGCs have enjoyed strong earnings in 2015, with each vessel generating over $2mn a month in the period to September.

This is because of rising US exports, a trend towards long-haul routes as US LPG exports gain ground in Asia, and as new vessel deliveries have been slow to emerge.

Rising US production and improvements to its infrastructure have enabled the country to ramp up its LPG exports dramatically in recent years, with the US's 2015 LPG exports surpassing 2014's level by the end of September.

In terms of demand, China's LPG imports have risen as new propane dehydration plants came into operation, raising the country's imports to 8.4mn tonnes in the first nine months of 2015 — easily surpassing the 6.9mn tonnes imported during the entire of 2014.

As much of these imports are from the US, it has boosted demand for larger vessels. A desire for South Korea and Japan to diversify from Middle Eastern supplies in order to strengthen their bargaining power has also seen extra demand for bigger ships.

Shipping fleet supply has failed so far to keep track of this pace, however, with only eight VLGCs delivered in 2014 and 20 in the first nine months of 2015.

Looking ahead, Drewry expects US exports to remain strong because of fresh production capacity, while Asian buyers are continuing to diversify away from the Middle East.

As the global VLGC fleet is set to expand at a faster pace than in previous years, shipping rates should begin to edge lower.

The extended Panamax canal will also cut the voyage distance between the US and Asia-Pacific by over a third, freeing up vessels to make other journeys.

While this should not lead to a sudden fall in freight rates, they do expect a gentle decline from the second half of 2016, leading to a recommendation that owners look to secure long-term charters while rates are high, Drewry gas analyst Shresth Sharma said.