Exhibition & Conference

8-10 September 2020

Singapore EXPO, Singapore

Strategic Programme

1709.jpg
Kenta Matsuzaka

Managing Executive Officer

Mitsui O.S.K. Lines, Ltd


16:25 - 16:50

Wednesday, 18 September 2019

S2.6 Shipping Market: Factors to make an influence

Category: Strategic Conference,”Midstream>Optimising Shipping Operations” or “Full Value Chain>Contracts, Trading&Pricing”

Objectives/Methods

The LNG shipping market has been changing dramatically over the past couple of years. In 2018, the spot charter rate reached a record-breaking high level. Moreover, the rate fell to below half the record-breaking high level in winter, although this was a high demand season. In other words, the LNG shipping market entered a period of unpredictability. In this presentation, we analyze recent LNG shipping market trends by investigating different aspects of the market.

Results/Observation

The rapidly growing demand of LNG could be one of the reasons for the excessive fluctuations of the LNG shipping market, but it seems other important movements are greater factors:

Firstly, from October to December 2018, dozens of laden floating LNG vessels appeared especially in Asia. There are several explanations for this situation.

Some sources point out that China has accelerated the pace of LNG imports from the first half for the winter demand, but the actual demand was lower than expected because of a warmer winter and other reasons. This created the situation where the capacity of LNG storage tanks was insufficient to receive any further quantity of LNG, making laden vessels wait and float until adequate empty space became available to allow them to discharge their cargo.

Others mention the possibility that some traders or portfolio players intentionally used them as “Floating Storage” for contango play, i.e. pursuing arbitrage between autumn and winter prices, based on the assumption that the price would rise in winter.

Whatever the reason is, the floating vessels limited vessel availability and affected the spot charter market. This was one of the reasons why the spot charter rate reached a record high level in the autumn 2018. Once the floating vessels returned to the market, the rate dropped rapidly despite this being the demand season.

Secondly, in the winter 2017-2018 and summer 2018, the LNG price gap between Europe and Asia (usually the price is lower in Europe) was so wide that European players re-exported cargoes to Asian countries to increase profits. This tendency increased the ton-mile, tightened vessel availability, and resulted in high spot charter rate.

The movements above have more typically been seen in the oil market, but rarely seen in the LNG market. They could be explained as symbolic incidents reflect increased flexibility and liquidity in the LNG shipping market. The LNG spot charter market is small, and this leads to high volatility. It is said that this trend and high volatility are making LNG users aware again of the advantage of term contracts. Under the circumstances, an important mission for shipping companies is to arrange contracts with the LNG users which are convenient for them.

Conclusion

The LNG shipping market had long been recognized as relatively stiff, but recently, the market has increased its flexibility and liquidity. It is important to be aware of not only the fundamental factor but also these new movements influence the market condition.