The VLGC market in 2025 remained highly volatile, with occasional rate spikes overshadowed by weak fundamentals. Vessel oversupply and fragile demand, along with factors such as US loading disruptions, fluctuating arbitrage, and tariff uncertainties, weakened TC rates by 22% YoY in 2025. Rates revived in 3Q25 on the back of robust supply and strong Asian demand, yet volatility persisted amid trade policy risks, weak petchem margins, and USTR-driven vessel repositioning, reinforcing the overall downward trend.
Muted start to 2025: Weather-driven trade disruptions and onset of trade uncertainties
Disruptions to US loadings: The first quarter showcased high volatility for VLGCs as the market endured a series of disruptions and uncertainties. In January 2025, adverse weather conditions (a cold snap followed by fog), pilotage delays and terminal congestion significantly impacted US vessel loadings and the LPG market.
Several terminals reported delayed loadings and restricted berthing availability. Over a dozen VLGC loadings were postponed, and some vessels faced delays of up to 5–7 days. The delays led to a spike in the Baltic Houston-Chiba LPG Index by 15-20%, constraining spot chartering activity. Meanwhile, a surge in US LPG prices due to higher domestic demand shut the US–Asia arbitrage, compelling Asian buyers to shift to the Middle East for prompt cargos.
However, the commissioning of new export capacity in mid-2025, notably Energy Transfer’s Nederland terminal, combined with a milder hurricane season, a key factor typically disrupting US LPG flows between July and October, helped sustain US LPG export flows through 2H25, maintaining 6% YoY growth in 2025.
The beginning of tariff war: The start of the US–China trade war 2.0 in February 2025 spooked Chinese buyers, encouraging them to make alternative plans, despite LPG being exempt from tariffs in the initial phase of the tariff war. In anticipation of a change in the future, Chinese buyers upped their US LPG imports in March, which tightened the market.
Many believed that LPG would remain exempt from tariffs, given the sheer volume of trade between the two countries. However, escalating trade tensions and increasing tariffs from both sides led to an 84% tariff on US LPG in April 2025, which was later increased to 125% in the same month. China’s retaliatory tariff announcement severed the impact, with the immediate effect being the rush to load vessels at US terminals before the effective 9 April date.
A volatile 2Q25: US-China tariff war and Middle Eastern conflict took centre stage
Trade flows realigned as tariff war intensifies: In early April, US LPG loading surged as market participants sought to complete liftings before the 9 April deadline, the last date for vessels to load and discharge prior to
China’s retaliatory tariffs, effective 14 May. Following the closure of this loading window, trade flows changed significantly.
China ramped up Middle Eastern liftings at higher premiums, while Aramco facilitated cargo swaps, redirecting US LPG to India. Meanwhile, Japan redirected Canadian volumes to China and backfilled them with US cargo. These swaps triggered widespread vessel rerouting and extended tonne-mile demand, boosting VLGC rates.
Although the 7 May trade deal temporarily paused tariff implementation for 90 days and a second pause in July for another 90 days, the preceding uncertainty elevated VLGC rates through the quarter—initially via front-loaded US liftings, then through tonnage repositioning and extended voyage distances. As tensions eased, China’s renewed appetite for US LPG further supported robust USG loadings, sustaining high VLGC rates in June.
Turbulence in the Middle East with enduring consequences: In June 2025, tensions between Iran and Israel brought the Strait of Hormuz under geopolitical scrutiny. Although the strait remained open, Iran’s parliamentary vote in favour of closure and subsequent military posturing created significant market uncertainty.
The Strait accounted for laden transits of over 800 VLGCs and 350 MGCs in 2024, representing 92% of Middle Eastern NGL exports and 34% of global volumes, with Asia absorbing 97% of outbound flows. Even a brief disruption, compounded by vessel bunching in the Gulf of Oman, tightened tonnage supply and pushed the AG–Japan VLGC spot rates up 20%, before easing with the de-escalation in tensions. The elevated war-risk premium, however, kept rates buoyant even during the July–August period.
Meanwhile, the Gaza ceasefire announcement on 1 July was unable to increase the Red Sea transits, as owners remained risk-averse amid persistent concerns about attacks. Only vessels with discharge at Egyptian terminals or loadings from Saudi Arabia’s Yanbu for Europe-bound voyages transited, forcing most vessels to take the longer COGH route. This extended tonne-mile demand and supported VLGC rates throughout the year.
Additionally, increased scrutiny of Iranian LPG supply curtailed dark fleet operations, shifting chartering demand toward compliant vessels, further tightening the tonnage pool and keeping rates buoyant.
Optimism boosts 3Q25 rates amid demand recovery, but risks persist
In 3Q25, LPG shipping witnessed a strong quarter with healthy shipping rates across the Fr segments, driven by ample supply from the US and Middle East, wide arbitrage and improved Asian demand from the petchem sector and pre-festive stockpiling. However, the market was also unstable amid the unpredictability surrounding US-China trade policy, concerns over weak petchem margins and vessel repositioning ahead of the implementation of the USTR regulations.
The second US-China 90-day tariff truce failed to have a significant impact on market sentiment, with Chinese buyers still preferring non-US cargoes due to uncertainty. Meanwhile, the shipping market normalised during July–August, following the heightened Middle East tensions in June and the impact on Strait of Hormuz transits, while LPG demand rose due to higher petchem operating rates.
The pre-festive stockpiling demand from India and China also supported the market in August amid low prices and a wide arbitrage, with VLGCs ballasting from East to West of Suez via the COGH in search of better premiums. Higher-than-normal discharge delays at Indian terminals tightened fleet supply, along with the average waiting time rising for VLGC Panama Canal transits.
Two hidden market movers: Volatile arbitrage and canal transit changes
Volatile arbitrage and increased COGH transits throughout 2025 weighed on VLGC rates, as frequent vessel repositioning and longer voyage durations constrained the effective supply of vessels.
Arbitrage remains volatile throughout 2025: In 2025, LPG shipping arbitrage was shaped by a series of price and geopolitical developments. Early in the year, US-Asia arbitrage remained narrow due to high terminal fees and tariff tensions, limiting US flows to China.
In 2Q25, frequent changes in the trade patterns, downward pressure on US propane prices due to trade tensions, subdued export sentiment and fears of supply disruptions in the Middle East, particularly around the Strait of Hormuz, triggered intermittent price spikes. This created unstable arbitrage, with frequent shifts in trade viability.
In 3Q25, Saudi Aramco initiated consecutive CP cuts—propane down to $475/tonne and butane to $460—driven by weak Asian demand, lower crude benchmarks and mild winter forecasts, making Middle Eastern LPG cargoes more competitive; this redirected flows towards Asia and created short-term arbitrage opportunities that temporarily strengthened spot rates.
Frequent changes in the arbitrage impacted the LPG trade, especially fixtures, creating high uncertainty. However, increased Middle East-Asia trade reduced tonne-mile demand, contracting long-term VLGC earnings.
Panama transits reduce and then rise: In 2Q25, laden VLGC transits via the COGH increased, while those from Panama Canal declined, reflecting a shift in trade patterns, driven by firm US LPG flows to India and Indonesia and weak US–China trade. However, as tariff tensions eased in July, trade realigned, improving COGH transits while prompting a recovery in Panama Canal transits.
Moreover, the US–China trade war hammered the LNG trade between the two countries, and it had a significant impact on the container trade. As a result, Panama transit slots became available, which benefitted VLGCs as they started transiting the Canal, increasing the effective fleet supply and thereby shrinking rates by end September.
Fleet growth contracts, supporting rates in 2025
LPG fleet growth slowed to just 4% in 2025, down from 6% in 2024, reflecting a subdued delivery schedule and increased slippages as yards operate at near 100% utilisation due to a robust orderbook. The deceleration in newbuild additions constrained vessel supply, particularly in the VLGC segment, where incremental tonnage failed to keep pace with rising demand, driven by US export capacity expansions and sustained Middle Eastern liftings.
This tightening of vessel availability, coupled with thin spot tonnage, amplified the impact of geopolitical disruptions and extended routing via the COGH. The resulting imbalance between tonne-mile demand and supply provided support to VLGC rates, keeping them firm throughout the year.
Source: Drewry
