LPG: caught between topsy-turvy trade policies as market enters seasonally strong period

VERY large gas carrier trade routes began reshuffling after China announced retaliatory tariffs on US goods.

They are likely to undergo some more reshuffling now the US and China have agreed to lower reciprocal tariffs to 30% and 10%, respectively, for a 90-day period, with the expectation that a resolution to the rift will be found during that window.

However, that this trade war truce becomes a permanent ceasefire is far from guaranteed, and tariffs may well shoot back up at the end of 90-day period, making US propane uneconomical again for Chinese buyers.

The impending reshuffle will likely usher in volatility in the short term for VLGCs as US- China flows potentially restart. What happens next, as VLGCs enter the seasonally stronger second half of the year, will be clearer as the fallout from the tariff pause and trade negotiations shakes out over the coming weeks.

“This new drastic change will bring more volatility until the market settles to the new reality,” said Yohanna Pinheiro, head of liquefied petroleum gas freight pricing at Argus Media.

“Freight rates are likely to firm as an initial reaction to potentially more Chinese interest on US cargoes.

“Chinese buyers could start importing US cargoes again as soon as margins are workable, but they are cautious and waiting for clearer price directions for now.”

One shipping executive said recent rises in Baltic Exchange rates since the tariff reprieve announcement suggest that “cargo buyers are looking to buy product quickly, lest there be any change to the tariff regime”.

As the VLGC market enters the second half of the year, another trade policy set to affect the market is the US Trade Representative’s port fee plan.

The initial response to the USTR’s plan suggested the VLGC sector emerged relatively unscathed, although some ownership details require clarification, and the commencement of fees in October will likely usher in a repositioning of tonnage.

Other factors set to impact the sector are clearer. In terms of vessel and cargo supply, the outlook is positive. Newbuilding deliveries are relatively muted through to the end of the year, while a terminal expansion in the US Gulf is expected to increase export cargoes.

“Assuming the tariff agreement is implemented substantially along the lines reported,

then the outlook for the rest of the year looks fairly bright,” the executive said.

“That will ideally mean a strong summer market, with rates more in line with 10- to 15-year averages, and a decent fourth quarter.”

Routes to reshuffle – again

China’s retaliatory tariffs on US goods, announced in early April, sent freight rates crashing — but they bounced back shortly thereafter and were largely stable since, according to Baltic Exchange assessments.

Rates recorded further gains following the announcement of the easing of tariffs on May 11.

The US-China trade is instrumental to the VLGC market. Prior to the tariffs, the US was the largest supplier of LPG and ethane to China, while China was the US’s biggest customer.

About 13% of the VLGC market traded on the US-China route pre-tariffs, according to Clarksons shipping analyst Frode Mørkedal.

The easing of US-China trade tensions comes after market participants “have already started to significantly alter their plans” in response to April’s imposition of tariffs, said Argus Media’s Pinheiro.

“We saw cargoes from non-US suppliers being redirected towards China and potential new flows being drawn, especially with India’s Middle Eastern suppliers sourcing US cargoes to India.”

Data from commodities and analytics provider Vortexa showed US flows to China in April fell to multi-year lows, while flows to India reached highs. Japan and South Korea also scooped up barrels that were uneconomical for Chinese buyers.

These redirections and nascent trades have already absorbed some capacity and supported rates in the absence of US-China flows over the past weeks, said Pinheiro.

With tariffs eased, Chinese buyers will likely resume imports of US propane, but that does not necessarily mean US-India flows — which translate to longer voyages due to the Red Sea crisis and Cape of Good Hope diversions — will plummet immediately.

According to Pinheiro, the resumption of Chinese interest in US cargoes “does not necessarily mean there will not be any more US cargoes going to India”.

“The combination of these two flows would add significant tonne-mile demand and would support rates further.”

However, questions remain over the extent import demand in China recovers and supports VLGC freight rates. According to Pinheiro, propane dehydrogenation plants in China have already reduced their run rates, while steam crackers have begun exploring a switch from propane to naphtha, which is carried on product tankers.

In addition, the US-Asia propane price arbitrage — a key factor driving VLGC demand — is currently unfavourable, according to Pinheiro. Both of

these drivers could put a lid on a freight rally.

Will the USTR plan spur a decoupling of freight rates?

Another US policy set to impact the VLGC market is the USTR’s plan to levy fees on Chinese and Hong Kong owners and operators calling in US ports.

While non-Chinese VLGC owners will likely be spared from paying fees on China-built ships due to an exemption for vessels arriving in ballast, the fees on Chinese operators — starting at $50 per net tonne in October 2025 and gradually increasing to $140 per net tonne in April 2028 are steep enough to keep them out of the US market, even at the lower end of the fee schedule.

Assuming an average of 17,000 net tonnes for a VLGC, the $50 per net tonne charge would imply a steep fee of $850,000 per port call.

Should the USTR’s criteria for China-owned ships include vessels financed by Chinese leasing houses

which was still unclear at the time of writing — about 19% of all VLGCs calling in the US in 2024 would have fallen under that category. These costs will likely lead Chinese owners to reposition vessels to the Middle East, while more non-Chinese- operated tonnage will move to the US Gulf.

Freight rates in the US Gulf and Middle East typically move in tandem. But the exodus of China-owned tonnage from the US could lead them to decouple.

According to Pinheiro, with fewer vessels having the option to pick between trading in the US or the Middle East, “we could see a decoupling of the Ras Tanura to Chiba and the Houston to Chiba rate”.

“Today they move quite similarly. They mirror each other because ships can move from one basin to another and rebalance the gains from one or the other.

“But if there are more vessels dedicated to one of those regions and they don’t have an option to switch to the other one, we could see them then fluctuating differently,” she said.

Lloyd's List Daily Briefing 16 May 2025

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