Freight costs plummeted by 90% year-on-year! LNG transportation market faces a cold wave, industry insiders predict that the situation will be difficult to change in the first half of the year.

From the perspective of seasonal factors, the current heating season is gradually ending, and the LNG shipping market is entering the off-season, but it is significantly quieter than in previous years. Recently, lease rates and spot freight rates have dropped, with the one-year lease rate for a 160,000 cubic meter LNG ship hitting a historical low this week, down nearly 90% from the same period last year. Wu Jialu, head of the Industrial and Cyclical Group at CITIC Futures Research Institute, told Caixin that he expects market lease rates to remain low until June, with the daily rental rate for a 174,000 cubic meter LNG ship fluctuating around $10,000. According to the latest data from Clarkson, as of February 21, the one-year lease rate for a 160,000 cubic meter LNG transport ship dropped by $2,000/day from the previous week to $8,000/day, reaching a historical low. The spot freight rate for this type of ship was reported at $3,500/day this week, a 91% decrease year-on-year. The one-year lease rate for a 174,000 cubic meter LNG ship dropped by 73.3% compared to the same period last year. "In the recent spot market for 174,000 cubic meter ships, the daily rental rate is only $7,500/day, reaching a new low since 2019, and significantly lower than the long-term lease market price. Even with some ships locked in long-term contracts, the market will still face significant supply pressure," Wu Jialu analyzed. Aside from traditionally entering the off-season, the prices of LNG to Japan's Kanto region, European Dutch gas exchange (TTF), and the U.S. Henry Hub have not provided strong profit or arbitrage opportunities, affecting transportation demand. On the supply side, although new ships are being delivered, the proportion of orders held by LNG shipowners is still as high as 47.9%. Looking at the current new shipbuilding market, Clarkson data shows that as of February 21, the price for new LNG transport ships is $257 million, still at a high level. "In recent times, the construction orders for LNG ships have been weak due to the soft freight rates in the LNG transport market," a person from a listed company's shipyard told a Caixin reporter. Of note, Hengli Heavy Industries announced at the end of last year that it was entering the market for building large LNG ships. In response, the shipyard personnel said that despite the current poor market performance, Hengli Heavy Industries' move is also to prepare for the next cycle as the shipping market is a cyclical industry. In terms of domestic LNG shipping, according to an announcement from COSCO Shipping Energy Transportation (600026.SH), as of December 31, 2024, the company has invested in 87 LNG ships. The company has long-term charter contracts with large natural gas companies at home and abroad. The company's securities department told Caixin that there are currently no contracts nearing expiration, and all LNG ships are under binding contracts. China Merchants Energy Shipping (601872.SH) and COSCO Shipping Energy Transportation announced at the end of last year that they have increased their investment in their joint venture company CLNG for the participation in Qatar Energy's LNG transportation project with two 271,000 cubic meter QC-Max LNG ships for a 25+5-year lease. "For shipowners, the lower freight rates will put pressure on shipowners with high exposure in the spot market, and some older ships may consider exiting. Shipowners that primarily rely on long-term contracts are relatively less affected, but the weak spot market, coupled with the end of long-term contracts, will put greater pressure on them to obtain higher-priced subsequent long-term contracts," Wu Jialu said. It is still necessary to monitor whether more old LNG ships will exit the market through lay-up or scrapping, and to monitor developments in the Russia-Ukraine situation, as well as whether Europe and Russia will reshape their LNG trade patterns in the future. This article is reprinted from Caixin, GMTEight editor: Chen Wenfang.