LNG QUARTERLY: Bearish sentiment dictates market direction

Day Rates for LNG vessels in Q3 2024 deviated from previous seasonal trends to surprise market participants ahead of the winter period on the back of lackluster demand in both the Atlantic and Pacific basins.

Looking ahead, committed tonnage is expected to service a significant portion of newly released cargoes curtailing demand for an increasing fleet of available vessels. The anticipated price spike was absent this year, primarily due to a significant increase of LNG vessels in the market, resulting in freight oversupply combined with unseasonally low demand for ships. Demand is expected by many to remain linked to fewer available cargoes, as many trading houses have their own vessels and thus do not need to charter available vessels in the spot market.

As of Oct. 3, the Atlantic Basin saw Day Rates for TFDE vessels dropping to $46,000/d, down from $170,000/d the previous year, while two-stroke vessels were commanding $58,000/d compared with $210,000/d. In the Pacific Basin, TFDE prices dropped to $50,000/d from $185,000/d and two-stroke vessels decreased to $65,000/d from $225,000/d.

With the season of higher demand approaching fast, the price increase from July to September was noticeably narrower in the Pacific Basin.

The latest trends have been even more surprising in the Atlantic Basin, with the rates showing an inverse direction compared to the previous period, as this year's freight rates have declined rather than increased like they usually do ahead of the peak heating season.

"We are comparing prices to 2022 and 2023, but this is not the case," a shipbroker said. "We don't see the contango curve that we saw the previous years for November and December."

A London-based shipbroker said: "If there is no contango paired with a flat commodity price, there is no incentive to buy cargoes and thus charter vessels."

"The problem is that there are not many shipping requirements, if there were you would have companies going to the markets and then the rates would be higher. Low shipping requirements don't help demand," a charterer said. "Rates in the Pacific seem to be a bit higher than in the Atlantic, but overall rates are falling, and we are not moving away from that. It is surprising for this time of the year; we expected the market to be higher."

Still, not everyone was surprised, with a third source underplaying the impact of the inversion, explaining that "what is happening now is not a surprise, we would expect higher levels at around $60,000-70,000/d, not what we are seeing now -- $ 40,000/d-$50,000/d -- but still not surprising."

Bearish Outlook

An Italy-based shipbroker said: "At the moment we do not see any spike anytime soon. Geopolitical tensions may heavily and drastically change rates especially now with the increased tensions between Israel and Lebanon, but we cannot speculate."

"The events in the Middle East might change the prices, but I don't think this will happen," a Paris-based shipbroker said.

Market concerns appeared to focus on October, with one broker saying: "The markets ahead are tough; it's a game of patience."

"The mix of less cargoes and more ships" was creating a gloomy outlook for the market in the eyes of another market participant.

Another shipbroker said: "The market is very long; everyone is long on the fleet, and no one will take a vessel for a short period. There is also no arbitrage between the East and the West."

"The general outlook is that 2024 and the next few years will be relatively smooth for shipping trends, thanks to a high number of vessel deliveries that keep supply strong, along with the liquefaction projects that many are anticipating," a market participant said. "However, some projects are facing delays. So, while the sentiment is positive, it seems we might have to wait another one to two years for the market to stabilize."