I summarized China's current LPG shipping industry on Aug. 20 in terms of data, regulations and capacity limiting policy. Today, let's talk about the prospects for the industry in 2019 from the aspects of oil price trend and market demand.
Oil Price Trend
In the first seven months of this year, bunker prices jumped amid high international crude prices driven up by many factors including OPEC's production reduction, the United States' exit of the Iran nuclear deal and the deterioration of Syria's situation. Brent crude oil reached a four-year high of USD80 per barrel. Data collected by Eshiptrading.com show that during the period, prices of fuel oil 180CST ranged from RMB3,500 per ton to RMB4,700 per ton, compared with the range of RMB3,100 per ton to RMB3,800 per ton witnessed during the same period a year earlier.
International crude prices have started to go down since mid-August due to OPEC's forecast cut for global oil demand and the appreciation of the U.S. dollar. However, it is worth noting that the U.S. will carry out the sanctions on Iran's crude export on Nov. 4, which will cause a supply crisis. Therefore, international oil prices are expected to surge in the fourth quarter of this year, and those of China are forecast to go up accordingly. In this case, the operating costs of China's shipowners, including LPG carrier owners, will increase.
Refining and Chemical Integration Projects
The first phase of the huge refining and chemical integration project invested by Zhejiang Petrochemical Co., Ltd. will conduct its trial operation this December. The next phase, which is the final one, will be kicked off around 2020. Upon the completion of the project, the refining capacity will hit 40 million tons per year. Additionally, the annual outputs of arene and ethylene will reach 1,040 tons and 280 tons respectively. It is said that the total investment in the project hits as high as RMB173 billion.
In addition, many other projects of this kind are underway in China. Therefore, the domestic demand for LPG shipping is anticipated to rise.
Thus, the operating costs for China's LPG carrier owners are forecast to climb, but at the same time, refining and chemical integration projects will boost the demand for LPG shipping, which will push up freight rates and rents.