LPG shipping stock rises as propane exports set new highs

Dorian LPG (NYSE: LPG), a prominent figure in the shipping industry, has seen an impressive 63% increase in its year-to-date adjusted closing price, its highest since the company's debut in 2014. Dorian specializes in transporting liquefied petroleum gas (LPG) — comprising propane and butane — predominantly from sources in the U.S. and the Middle East to Asian markets. This surge aligns with the U.S.'s upward trajectory in LPG exports, hitting a peak of 14.5 million tons in Q2 2023.

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However, despite the stock's commendable performance, Jefferies analyst Omar Nokta shifted Dorian's stock rating from "buy" to "hold". Nokta's downgrade hints that while the company's market fundamentals remain robust, its potential for further growth might be restrained, if not stunted.

The demand for propane, a pivotal element of LPG, spans across residential uses like heating to commercial applications in the plastic production sector. Key factors propelling the demand for Very Large Gas Carriers (VLGCs) include the U.S.'s prolific LPG export numbers, the rise of propane dehydration (PDH) plants in Asia, and propane's cost-effectiveness when juxtaposed with naphtha. Additionally, new steam crackers, particularly in China, can now alternate between LPG and naphtha, enhancing market flexibility.

Dorian's financials mirror this bullish trend, with their VLGCs registering an average daily rate of $51,156 in Q2 2023, marking a 29% year-on-year upswing. Clarksons Securities indicates a bright Q3, as daily rates for VLGCs are currently hovering between $83,500 and $85,000.

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According to Procurement Resource, in light of surging propane exports, Dorian LPG's 63% year-to-date stock rise aptly reflects the global demand trend. As the U.S. cements its position as a top LPG exporter, particularly to Asian markets, Dorian stands out in the shipping industry. However, analyst Omar Nokta's rating shift from "buy" to "hold" suggests potential market uncertainties ahead. The increased applications and cost advantages of propane further amplify its market demand. Dorian LPG's stock trajectory is thus emblematic of the broader shifts in the LPG shipping industry, driven by unprecedented propane exports.