Several shipping stocks have outperformed the market this year, with Dorian LPG (NYSE: LPG) leading the pack. Its adjusted closing price, factoring in dividends, has surged by 63% year-to-date. On Monday, its share price attained a historic peak since its initial public offering in 2014.
Dorian manages a fleet of very large gas carriers (VLGCs) that facilitate the transportation of liquefied petroleum gas (LPG), encompassing propane and butane, on extensive journeys, primarily from the U.S. or the Middle East to Asia.
The U.S. energy sector is witnessing significant success through LPG exports. The United States stands as the largest global LPG exporter, with a seaborne volume of 14.5 million tons recorded in the second quarter of 2023 — marking the highest quarterly total ever, as per Dorian’s reference to Platts data.
New records were set for Middle East LPG exports at 12 million tons and globally at 33.8 million tons in Q2 2023. Unlike the oil trade, LPG shipping volumes continued to rise during and after the pandemic, even amid OPEC production cuts.
The impressive performance of Dorian’s share price prompted Jefferies analyst Omar Nokta to downgrade the stock from a “buy” to a “hold” rating. Nokta mentioned, “Dorian has been the best performing name in our coverage, and the shares have transitioned to a premium-to-NAV valuation after years at a discount. Fundamentals remain favorable, but we believe upside is limited.”
Expanding Propane Exports
Propane serves residential heating and cooking needs, as well as commercial applications in petrochemical production.
On the commercial front, propane is supplied to Asian propane dehydration (PDH) plants for the creation of polypropylene, a crucial material in plastics production.
Propane also functions as a feedstock for steam crackers in plastics and packaging manufacturing. It competes with naphtha, shipped via product tankers, for steam crackers’ needs.
The availability of LPG for export from the U.S. and the Middle East influences the demand for VLGCs. With more LPG accessible, PDH plants flourish in Asia, and the discount of propane to naphtha increases.
Regarding export cargo availability, Tar Rasmussen, Dorian’s VP of chartering, highlighted that North American exports benefited from weak domestic consumption due to a mild winter and a warm summer that reduced the need for early crop drying.
LPG demand in Asia on the rise
According to Dorian CFO Ted Young, China has seen an increase in PDH capacity. Despite a slower economic recovery, the demand for LPG remains promising, given its attractive pricing and the opportune moment to accumulate inventories.
In terms of steam-cracker demand and the propane-naphtha spread, Rasmussen noted a changing landscape. While not all steam crackers can substitute naphtha with LPG, more flexibility is emerging, especially in China.
Seasonal demand is driving higher rates
Dorian’s VLGCs achieved average rates of $51,156 per day in Q2 2023, up 29% year-on-year. Net income doubled to $51.7 million compared to the same period last year.
VLGC rates have surged in the current quarter, with average rates for non-eco-designed VLGCs reaching $83,500 per day and eco-designed VLGCs at $85,000 per day, according to Clarksons Securities.
