BW LPG (OSE: BWLPG) an ocean carrier of crude oil, gas, chemicals, and products of oil, has reported a first quarter 2019 net loss after tax of US$23.5 million. It’s a loss that’s about three times greater than the US$8.4 million loss recorded in the first quarter of 2018.
All further dollar figures are in U.S. dollars. All references to previous quarters, periods and the like refer to the first quarter of 2018.
Revenues
BW LPG’s revenues in the first quarter of 2019 marginally increased by 0.2 percent from the previous period to stand at $118.1 million. Earnings before tax, depreciation and amortization fell by 18 percent to $20.7 million by the end of the first quarter, down from the $25.3 million recorded in the previous period.
There were a few areas that tipped BW LPG into the red. There was a big increase in voyage expenses of 29 percent from $44.68 million in the first quarter of 2018 to $57.85 million in the first quarter of 2019. It’s a difference of $13.17 million. There was also a $3 million increase in other operating expenses. There was a $2.8 million increase from the prior quarter in the “interest expense” account, which stood at $14.72 million in the first quarter of 2019.
BW LPG could have recorded a much greater loss but there was a dramatic fall in charter hire expenses, which fell four-fold to $4.35 million in the first quarter of 2019. It fell 74 percent from $16.47 million in the previous period.
Market analysis
In its market analysis, the company noted that freight rates for very large gas carriers weakened owing to price arbitrage between the U.S. and eastern Asia.
“The underlying reason was that the U.S. seasonally consumes a higher portion of its LPG production for heating and gasoline blending in the winter season which put upward pressure on U.S. LPG prices,” the company said.
Global seaborne LPG trade reached 25.2 million tons (a metric ton is equivalent to 2,204.6 U.S. pounds), 14.8 percent up year on year. Very large gas carrier-borne LPG volumes reached 18.6 million tons in the first quarter, the company said, which was 17 percent up year on year.
Growth in the international LPG trade was driven by the U.S. BW LPG said, with North American exports up just under 22 percent year on year to 9.1 million tons. Exports from the Middle East were marginally up, by 1.1 percent year on year to 8.9 million tons. Iranian exports fell “drastically” by 68.4 percent owing to sanctions but these volumes were offset by increases from other countries in the region.
Chinese imports in the first quarter were 3.9 million tons, down 2.5 percent on the prior corresponding period. A “growing share” of North American exports to China are being re-routed to Japan and North Korea owing to the ongoing Beijing / Washington trade negotiations. Demand from India and South East Asia were both up too.
Outlook
Looking forward, the company envisages a recovery in freight rates as U.S. domestic consumption is likely to revert to seasonally lower levels, thereby increasing the price arbitrage between the U.S. and East Asia. The company is “optimistic” rates will improve from an average of $17,300 / day to a level above the company’s cash break-even levels.
However, increased demand for carriage may be offset by an increased supply of vessels, as the number of ships in the global very large gas carrier fleet is predicted to increase by nine percent by the end of 2021.
Singapore-headquartered BW LPG operates a fleet of 49 very large gas carriers with a total carrying capacity of four million cubic meters. It is listed on the Oslo Stock Exchange. The company is also associated with the BW Group, which, as of January 10 this year, owned 47 percent of BW LPG’s equity.