Fleet growth in 2026 will pressure earnings

On the supply side, Middle Eastern exports increased 11% in the first half of 2025, while US exports rose 6%. These gains offset weaker flows from Australia. Ms Manav cautioned, however, that geopolitical risks remained. She said US sanctions on Iran and ongoing regional tensions could affect export stability, while natural gas prices in the US posed another risk to production.

Ms Negi addressed petrochemical trades, noting that global olefin volumes were down 3% year-on-year in the first half of 2025. She said sluggish downstream demand in China and weak European industrial output had weighed on flows: “European petrochemical closures will support seaborne trade.” Drewry expects stable olefin trade and seaborne rates for the remainder of the year.

In Europe, she pointed to widespread rationalisation of petrochemical output. “Multiple factors such as high energy and stock costs, upcoming environmental regulations, policy shifts and growing competition from new, cheaper and more efficient facilities, especially in the US and Asia, will continue compelling European producers to rationalise their output,” she said. This will increase Europe’s reliance on imports while constraining domestic production. Some recovery is projected after 2026, though new regional capacity is expected to limit gains.

She added that China’s downstream demand had shown some improvement in the second quarter, but its sustainability remained uncertain. Ethane trade between the US and China remained steady as it was excluded from tariff measures, but new US licensing requirements created additional uncertainty.

Geopolitical tensions were a recurring theme. Ms Negi said the US–China tariff dispute continued to weigh on trade flows, noting that “Chinese buyers have been pulling back, resulting in a dramatic drop in US LPG’s share of China’s import … to under 15% this year.”

Some cargoes originally destined for China were redirected to India via the Cape of Good Hope, altering trade patterns. She also emphasised the vulnerability of Middle Eastern exports to regional instability, citing the Strait of Hormuz as a chokepoint that handles 34% of global LPG seaborne trade. Although exports were not disrupted, rates spiked by 15–20% in June 2025, during heightened tension.

Mr Sud described how these geopolitical pressures reshaped transit routes. He noted that since the 2023 Red Sea crisis, Suez Canal transits have remained limited, with most VLGCs opting for alternative routes. Mr Sud explained that many VLGCs shifted from the Panama Canal to the Cape of Good Hope in the first half of 2025, “mainly when owners [were] trying to limit or escape the high transit fees that they [would] have to pay at the Panama Canal.” He added that transits through the Panama Canal have since increased, while Cape passages are declining, though the sustainability of this trend remains uncertain due to potential congestion at the Panama Canal.

“Fastest fleet expansion will occur in 2026 and 2027”

He explained that these inefficiencies “are going to absorb all the additional fleet supply we have in the market and boost the earnings as well.”

Fleet dynamics were another focus. Mr Sud said LPG shipping is projected to grow at a compound annual rate of 8.4% between 2025 and 2030. Deliveries are set to accelerate from 2026, while demolitions are expected to rise as older vessels struggle with regulatory compliance and weaker earnings. He estimated that 30–40 VLGCs could be scrapped. New orders have been subdued in 2025 due to high prices and uncertainty around US trade policy, though interest remains for specialised carriers such as ammonia, ethane and CO2 vessels.

Summarising Drewry’s position, Mr Sud expected VLGC rates will decline by 19% in 2025, but the second half will outperform the first; global trade will rise by 1.9% this year, supported by US and Middle Eastern supply; and multiple risks, including tariffs, sanctions, demand uncertainty and Panama Canal congestion, will continue to shape outcomes. Fleet growth from 2026 and 2027 will pressure earnings, while replacement and specialised carrier orders will provide support for shipyards.