Growing opportunities for LPG freight risk management
Nadia Mirza, head of new markets at the Baltic Exchange discusses the implications of the Baltic’s new BLGP3 route
Last week FFA trading started on the Baltic Exchange’s LPG assessment BLGP3, with the first trades reported. Covering 44,000mt cargoes from Houston to Chiba, via the Panama Canal, CME now lists the contract, providing world-class clearing options.
2020 was a record year for LPG exports from the US, as Asian residential use continued to grow. LPG spot shipping rates have faced a volatile 2021, with our BLGP3 route assessment rising to $182.4 per tonne before dropping away sharply to below $60 by March. This turbulence has underlined the importance of risk management. The ability of owners and traders to manage their freight risk through FFAs is supported by the Baltic Exchange.
The LPG market is a niche, but important shipping market. The Baltic Exchange has been supporting the market with daily assessments since 2002, reporting on Middle East to Japan rates. But the rapid growth of the Houston petro-chemical complex, supported by a global customer base and the emergence of ever more Very Large Gas Carriers, has allowed the Baltic Exchange to report on two new routes from the US Gulf to Europe and Asia.
To support the needs of the market, the Baltic itself needs the support of the market participants. We need greater representation from owners, charterers and brokers.
The LPG shipping market is very successful: it is well serviced by brokers and there’s a well functioning spot market. But the LPG sector need only look to the clean product tanker market, or indeed the dry bulk market, to see what opportunities arise when there is a highly liquid market for FFAs. A liquid FFFA market helps open new trading opportunities and new customers.
We offer LPG market participants a seat at the table. As global LPG trading patterns change, so will the Baltic Exchange’s assessments and routes. We want to evolve with the market and to do so, we need to work the LPG industry. We have an eco-system of working and consultative groups and advisory councils which ensures that our vessel and route descriptions are keeping pace with the physical market. We offer a neutral space for competing parties to share their views.
We want to promote the FFA market and help introduce new participants. Our reach is global. We are a membership organisation whose role it is to support our members.
We want to support the LPG shipping community, but to do that we need your support and participation.
Nadia Mirza
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