Navigator Holdings Ltd (NVGS) 2017 Q1 法說會逐字稿

Thank you for standing by, ladies and gentlemen, and welcome to the Navigator Holdings Conference Call on the First Quarter 2017 Financial Results. We have with us, Mr. David Butters, Chairman, President and Chief Executive Officer; Mr. Niall Nolan, Chief Financial Officer; and Mr. Oeyvind Lindeman, Chief Commercial Officer of the company.

(Operator Instructions) I must advise you the conference is being recorded today.

And I now pass the floor to one of your speakers, to Mr. Butters. Please go ahead, sir.

Thank you, Jenny, and good morning, everyone, and welcome to the first quarter earnings conference call.

Now Navigator's performance in the first quarter of 2017 pretty much mirrored that of last year's fourth quarter in that a weak LPG shipping segment was partially offset by a more buoyant petrochemical gas market. Reasonably good utilization in the low 90s, however, could not overcome last -- the low and deteriorating charter rates. Oeyvind Lindeman, our Chief Commercial Officer, shall review the current state of the market and provide some details around the first quarter's activity.

Now leaving aside the $4.2 million extraordinary charge associated with the early refinancing of the $125 million Norwegian bond in February, one of the items that Niall Nolan will cover in a few minutes, Navigator's net income after tax amounted to about $6.9 million or $0.12 per share. EBITDA totaled $33.5 million for the quarter.

These results are pretty much in line with what we thought we would achieve at the beginning of this year, but the poor reflection against last year's when EPS of $0.35 was recorded. It is especially striking when considering that last year's higher earnings were actually achieved with the utilization substantially below this year's 92.4%. It is quite clear then that the culprit in the lower earnings was charter rates. Indeed, this year's first quarter time charter equivalent day rates were $8,000 below last year's, when they reached approximately $29,561 per day.

Now the only bright spot has the -- is the recognition of the higher operating and earnings leverage that the company can achieve if rates move back up and if we can maintain or improve on our utilization. Unfortunately, however, we do not expect that to happen in the near future. Realistically, we need to go out as far as this year's fourth quarter before we can see the possibility of any relief. And by then, Braskem's long-term charters on our handysize ethane carriers should commence, reducing our exposure to the spot market by 2 vessels.

Also, Sunoco Logistics, our energy transport partners, as they are now referred to, expects completions of the Mariner East 2 pipeline by the end of this year's third quarter. And if all goes according to plan, they will begin transporting an incremental 275,000 barrels a day of liquids from the Marcellus/Utica basins into the Delaware River terminal at Marcus point. This East Coast refrigerated terminal will benefit all types and sizes of LPG vessels.

Turning to the petrochemical side of our business. The transport of propylene, butadiene and ethylene amounted to just over half of this year's first quarter activity, up over twice the percentage carried in the same period last year. Our contract of affreightment with Mitsubishi and our contract of affreightment with Braskem were an important part of this olefins trade. In general, petrochemical gases are a preferred trade for us considering the premium rate we get over LPG and the tendency to carry these products along the distance, earning us more money for a longer period of time. The downside of this trade, however, is that it is easily impacted by price volatility in crude and refined products, especially when hydrocarbon prices are falling and traders are really reluctant to take on long-term positions in a falling or weak market; And consequently, business tends to be unpredictable. A market view of any length of time in this segment is rather difficult.

Lastly, we have no further developments to report on the progress of an ethylene export terminal. We continue to discuss with the relevant parties who are -- who have indicated their interest in constructing a terminal, but we are not aware of any firm commitments as yet. We remain confident based upon these discussions as well as discussions with ethylene producers and buyers that a terminal is needed and will be built. It is worth noting that since our last conference call, Exxon, in partnership with SABIC, the Saudi Arabian company, have announced their interest in building yet another worldscale steam cracker near Corpus Christi, Texas. The $10 billion ethylene plant could be operational around 2022. If they follow through with the expansion as expressed in their press release, this could signal a second wave of new construction and capacity expansion of ethylene.

And now I'd like to call -- pass the call over to Niall Nolan to review the financial performance.

Thank you, David. And good morning to everyone. Revenue for the 3 months ended March 31, 2017, was $77.3 million, an increase from last quarter but a small reduction of $1 million or 1.2% relative to the comparative first quarter of 2016.

Net revenue, however, revenue less voyage expenses, which eliminates the effect of further vessels on time charter or voyage charter, was $62.3 million for the first quarter, a slight increase from last quarter but $7 million or 8.6% less than this 90 -- than the $69.3 million generated during the first quarter of 2016. This decrease in net revenue was ostensibly as a result of a reduction in daily charter rates, as David has just mentioned.

Charter rates for the 3 months ended March 31, '17, were $21,712 per day or $660,000 per month compared to $29,560 per day or $900,000 per month during the first quarter of 2016. This had the effect of reducing quarter-on-quarter revenue by $21.3 million.

This first quarter's average charter rate was also approximately $1,000 per day less than last quarter, Q4 of 2016, as the 12-month time charters agreed in late 2015 or early 2016 expire and are renewed at the current lower rates than those available more than 12 months ago.

Vessel utilization, however, increased for this first quarter to 92.4% from 87.6% during the first quarter of 2016 and also a further improvement from the 89.5% achieved during the fourth quarter of 2016. This improved utilization helped increase net revenues by $3.2 million compared to the first quarter of 2016.

During this first quarter, we had an average of 24.6 vessels in operation compared to an average of 29.8 vessels during the first quarter of 2016, contributing an additional $11.1 million to net revenue. At March 31, we had 35 vessels in our fleet, following the delivery of Navigator Nova and Navigator Luga in January this year, giving an overall average age across the fleet of 6.6 years.

Since the quarter end, we have taken delivery of Navigator Yauza, and now both it and the Navigator Luga are on long-term time charters. We have 2 final vessels in our newbuild program, Navigator Jorf and Navigator Prominence. Navigator Jorf is also chartered long-term immediately after her scheduled delivery in July this year.

There were no drydockings undertaken during the first quarter, and none are scheduled for the remainder of 2017. 7 vessels are expected to enter drydock for special service during 2018 at an anticipated combined cost of $8.5 million.

Voyage expenses for the first quarter were $15 million, an increase of $7.9 million from the first quarter of 2016, as a result of an increase in voyage charter days to 1,397 days or 49% of all vessel available days during the first quarter compared to just 792 voyage days or 34% of the total during the first quarter of 2016. For voyage charters, the company pays for voyage expenses, which are then passed through as an increase in revenue.

Today, 17 of our 36 vessels are on time charter; a further 6 on contract of affreightment continue to carry petrochemicals from the U.S. and from South America to the Far East; and the remaining 13 vessels undertaking voyage charters on the spot market, the majority of which transport petrochemicals.

Vessel operating expenses, or OpEx, increased by 6.7% to $23.9 million for the first 3 months of this year compared to $22.4 million for the comparative period in 2016 as a result of increased number of vessels in our fleet. The daily rate for vessel operating expenses reduced to $7,672 per day during this quarter compared to $8,164 per day for the first quarter of 2016.

General and admin and corporate expenses remained relatively static at $3.4 million quarter-on-quarter as we benefit from the current favorable U.S. dollar-sterling exchange rates, offsetting the additional costs incurred associated with the newly formed technical function managing our vessels in-house. 5 vessels are now technically managed in-house, with a further 4 to 5 vessels expected to be taken in over the course of the next year.

Technical and crewing management for our other vessels are currently outsourced to 3 third-party managers, with their management costs being included as part of vessels OpEx.

During the quarter, we exercised a call option to redeem the $425 million outstanding on our 2012 bonds at a call price of 102%, incurring a premium payable of $2.5 million and an interest penalty of approximately $1 million. In addition, $650,000 was written off in deferred financing costs associated with this redemption.

Interest costs for the quarter were $8.9 million, up by $1.1 million compared to the first quarter of 2016, primarily due to additional bank debt associated with the 5 newbuild vessels delivered since March 2016 but could have been higher except for a reduced interest rate on our new bonds and a lower interest rate margin on the 2 loans that we refinanced last October.

Adjusted EBITDA was $33.5 million for this first quarter if we exclude the finance costs associated with the bond redemption compared to $41.9 million for the first quarter of 2016.

Net income for the 3 months ended March 31, 2017, was $2.7 million, giving an earnings per share of $0.05. However, as David mentioned, if we -- if the costs associated with the early redemption of the 2 2012 bonds were excluded, net income was $6.9 million, giving an earnings per share of $0.12.

Turning to the balance sheet. Cash remains strong at $45.6 million at March 31, 2017. In February, we successfully issued a new $100 million unsecured bond on the Oslo Børs in Norway at a fixed rate of 7.75% and with a maturity of February 2021. The principal purpose of this bond was to help refinance the early redemption of the company's larger $125 million bond that had an original maturity of December 2017.

At March 31, 2017, our current liabilities exceeded our current assets by $149.3 million, primarily as a result of a 2012 bank loan that is due to mature in February 2018. This bank loan has an outstanding balance at March 31 of $147.6 million. And in accordance with GAAP, this was included in current liabilities. We are currently reviewing a term sheet to refinance this facility at what would likely be a more favorable margin than the 3.5% being paid on the existing facility.

And finally, the current aggregate contractual commitments to the shipyards across our now remaining 2 newbuilds has reduced to $80.4 million, against which facilities exist to provide up to $89.7 million against these 2 deliveries, giving us a net cash inflow of approximately $10 million once both vessels are delivered.

And with that, I'll hand you over to Oeyvind.

Thank you, Niall. And good morning, everybody. We have touched upon Navigator's positioning of versatility and complexity continuously throughout these earnings calls and how this fits in with the current industry trends. We've been working very hard on carrying out -- carving out a niche for our company of being a specialist and using our knowledge of gas transportation to enable trade. This is particularly relevant for the deep-sea petrochemical markets where we play an active role. Today, we are involved in taking ethylene from the U.S., to Asia. We are involved in taking propylene from U.S. to Europe. We are involved with taking ethylene, butadiene and propylene from Brazil to Asia. And we are involved with taking ethylene from Middle East to Europe, just to name a few.

But we are unable to call upon Iran for the time being; others can, and have been pursuing opportunities there. Recently large process of petrochemical cargoes, including ethylene, were shipped from Iran to Asia, reflecting the ongoing development of the Iranian gas infrastructure and their ambitions to become a substantial and reliable supplier of olefins.

On other news, we have our first-ever spot fixture in ethane during the quarter. Navigator Neptune successfully loaded a full cargo of ethane from Enterprise's Morgan's Point export terminal on the U.S. Gulf Coast to Stenungsund in Sweden, where the ethane is used as cracker feedstock for the production of ethylene.

And the proportion of our total revenue from petrochemical transportation increased from 20% in the first quarter '16 to about 52% in the first quarter of '17. This 52% of our total revenue was derived from only 12% of total cargo lifted across our entire LPG petrochemicals and ammonia portfolio, which is due to the longer duration of these deep-sea petrochemical voyages.

In terms of our total vessel earning days. LPG time charter and LPG spot trading reduced from 59% and 16%, respectively, in the first quarter of '16 to 42% and 10% in the first quarter of '17. However, earning days for petrochemical gas increased from 18% to 43% during the same period, taking up some of the lost ground from LPG and providing support to our utilization rate.

That said, as David touched upon, the LPG market continues to be challenging over the near term, with oversupply of tonnage across most segments ultimately limiting much of a rate upside in the fully refrigerated propane and butane freight market as well as impacting utilization for the vessels we have trading in LPG.

And with that, we will open the floor.

So Jenny, if you can open the floor for the Q&A period now, please?

(Operator Instructions) From Wells Fargo, your first question comes from the line of Mike Webber.

David, my first question is for you and maybe Oeyvind. Oeyvind, I think in your previous remarks you went through some of these kind of mixed shifts between LPG and petchem on a year-on-year basis, and I think the answer to this question is somewhere in there, but I'm kind of thinking sequentially. But when you look at the fact that your utilization across of the entire fleet was up quarter-on-quarter, TCEs are down a bit and your petchem exposure is certainly higher year-on-year and I think flat to slightly higher sequentially, it would stand to reason that you get more petchem business that's slightly less profitable. But Oeyvind, you can maybe help us make sense of that on a sequential basis kind of from Q4 to Q1.

Sure. What is for sure is that our petrochemical earnings space is pretty meaningful. So the challenge with LPG is that it's very much a spot market than the fully refrigerated part of that business, which is the majority of that piece, is very competitive. So for the petrochemical cargoes we do trade, a lot of it is locked up in these contractor for freightness that we do have. That was made at a time that was different than today. But generally, the competition is less somewhat in the petrochemicals, particularly when you talk about the larger parcels where we play an active role. So that's kind of the dynamic. But contacts that were made even fourth quarter last year are proving to be more beneficial today than what it was back then.

Right. So the sequential pressure on TCE, it's sounding like it's coming from the larger-parcel LPGs -- LPG business opposed to the ramp you've seen in petchem volumes. It's really up utilization. Is that the right way to think about it?

That's right, yes. So the Very Large Gas carriers, the Medium Size Gas Carriers, the fully refrigerated LPG business that we're involved in, that's what's generally causing this ceiling or pressure down, if you like.

Got you. Okay, that's helpful. And then, I mean, just along those lines, can you talk to how both TCEs and utilization have trended quarter-to-date in Q2?

In this second quarter?

Yes. Yes, David.

I think it's getting tougher, I think, particularly in utilization. Oeyvind, why don't you give an update on that?

Again, it's more to do with LPG than petrochemicals. LPG, we're coming out of the winter months, and now it's springtime. And traditionally, that reflects a weaker -- weakening market, weakening appetite. And U.S. can -- if they don't get the pricing that they want on LPG, they can store it in Mont Belvieu, which they did last year, if you remember, when they started building less supply then. And if you combine that with additional tonnage, fully refrigerated additional tonnage, then that is challenging. But for the petrochemical side, we still see that as being active but is not sufficient to soak up all our ships from the LPG side. However, last -- for the quarter, only 10% of our spot business -- not only time charters, spot business, was from LPG. And that is a low number for us, but that will continue.

Yes. And again, we emphasize -- I emphasized in my prepared remarks, the importance of the Mariner East 2 with the increased volumes. And Mariner East 2 is under construction. They seem to be pretty much on time. But I'm skeptical because everything seems to get delayed in this business and disappoints. But as of last week on their conference call, they were pretty much assured that this thing could get done by the end of September. And that's going to be important because there is a lot of volume coming out of that. And it's ideal, the location of Marcus Hook, to reach out and deliver product to Europe. And we can be very competitive even on handy vessels to deliver that product in a competitive way into Europe. So we're hopeful that, that increases something. They did not talk about Mariner East 3 or Mariner East 2 extension, which would add another 275,000 barrels. I -- we know they are working on marketing that. The open season is still in existence. The importance of that should not be underestimated, Michael, because that combined with Mariner East 2 or Mariner East 3 is so much volume that I think it's going to reshape the pricing of exports of propane out of this country.

And the reason I say that is what surprised us in the Gulf of Mexico, particularly product coming out of the big terminals enterprise, et cetera, was the ability of the producer to take his product if he didn't like the pricing and since all of that product was running through Mont Belvieu that they would run it into storage and wait for a different pricing. That won't be the case when these volumes come out of Marcus Hook. East Coast has virtually no significant storage. So that product is going to run through and be put on vessels, and it will be put on by -- vessels because the price of that product (inaudible). It could very well be that the East Coast then determines the pricing of all exports of propane out of the states because I think the Gulf of Mexico will not -- producers there will not necessarily hold back and lose market share. They will adjust the price, so storage may be less important in the future. But all that is quite dependent upon, a, the completion of Mariner East 2 in September and the construction and completion of Mariner East 3 when we can get the significant volumes. I say and repeat that they are -- and we know -- we talk to them and talk to the same customers, they are marketing all sorts of products throughout the world. And I think it's a matter of time before that Mariner East 3 gets approved and built. But that will -- the kind of thing will change the LPG market for ourselves and for all site vessels.

Got you. That's helpful. And that effectively my last question, but just to clarify your earlier commentary around not seeing relief from the spot market pressure until kind of Q4. You referenced your exposure would technically step down in Q4, but I was curious whether that Mariner East 2 is effectively the variable that you think effectively eases the pressure on your spot TCE. Is that a fair way to characterize it?

I think it's going to be a significant contributor to reducing it. There is volume and particularly if they get the third one on, Mariner East 3, but 2 will be helpful. We used to do a [lot] business out -- on our handys out of Marcus Hook. But since they put the chiller in and they've got volumes now, they reduced the export volumes LPG because of ethane being shipped out of there at the moment. So that's taking up some of the capacity of the existing Mariner East 1 line. So it's pretty well dried up for us and all handysize vessels in the last year. So with the expansion and with the Fullbrooks operating, I think that would be a nice change for us.

Now from Stifel, your next question comes from the line of Ben Nolan.

So I had a handful of questions. The first gets -- I don't want to -- we've been talking about ethane export terminals for a really long time, and there's certainly movement in the right direction, but nothing has crossed the finish line. I remember, oh, I don't know, 4, 5 years ago, ever when it was, that at the time you guys had been contemplating perhaps taking a more active participatory role -- and I think it was an ethylene -- or ethane terminal in Pennsylvania. Is that something that you might would consider doing or being part of in order to kind of help expedite the process as the obvious beneficiary from ethane exports?

It sure is tempting at times, Ben. It was a butane terminal in Pennsylvania.

Butane, right.

But at this point, we would be rubbing a lot of our customers the wrong way if we started doing that, I believe. And I think -- what we have seen is that over the last so many months we've seen increased pressure to get an outlet built, an export outlet built. It is part because of the buyers of the ethylene have always wanted to have access to it. They're nervous about the length of contract that they have to take. But what we're seeing now is the producers are getting nervous about where they're going to sell all of the ethylene. And export market, international markets, clearly an alternative to domestic use. Remember, most of this is going to be consumed domestically. But having an outlet in the international markets were important. We believe talking to these producers more important. And I think they are an element in the equation that's different than what we have seen in the past. So no, I don't think, as frustrating as it is for us, we are not going to step in and be a builder of an ethylene terminal. We think we've -- there are several companies who have great capabilities and interest to do it. In time, we'll solve that, and we will have what we want. But it's kind of frustrating. But it will happen, in our opinion.

Okay. Great. And then maybe over to Oeyvind. You talked a lot in your prepared remarks and to Mike about the sort of the mix of petchems versus the LPGs and the revenue contribution and the petchem being stronger relative to a soft LPG market. Are you sort of where you would want to be with respect to that mix? Or do you think maybe there's more ground to be made up there? Or how do you envision where you stand at the moment LPG versus petchems?

Yes, Ben. I think we still have a job to do there. But looking over the last 12 months where we at least doubled our petrochemical involvement, both on earning space and revenue, I think that's a feat in itself. But it's not done yet. So we're kind of in the middle of that journey. There are projects involving predominantly propylene, which we are engaging in, which can have a meaningful impact. So the short and -- the short answer to your question is no, we are not done with that transition. It's still ongoing. So we would like to have a few more of the ships doing petrochemicals, yes. And I think there's room for that. But again, with the large parcels of olefins, we also butt head with inadequate infrastructure at some of the receiving ports and so forth. So it's -- things need to happen on some course in infrastructure, and then you'll see we having more ships involved in those trades.

Okay, that's very helpful. And then, and lastly for me. You mentioned that Iran is coming online or maybe there's [oil], and you're starting to see ethylene and various other petrochemicals, and LPG is coming out of there. It makes me a little curious, and especially if we begin to see more petchems moving out of the United States, what is the appetite on the demand side? Do you have any sense of if there's any risk that we run against a little bit of a demand wall if more and more exports continue to come into the market?

There's clearly a dynamic there. What we always said, Ben, is LPG is a -- supply driven and petrochemical is a demand-driven product. So you're right, demand needs to be there to receive. However, it's more of a question of disconnecting where it's produced not necessarily consumed, because most of it is in Asia, but where it's produced. So instead of producing it expensively locally, then they can buy it arguably cheaper from places like Iran where the gas is very cheap and from the U.S. where the gas is very cheap. So -- and so that is the question. Demand needs to be there. I think it's there, but it's a question of where the olefins are produced.

Okay. And that...

And again, one important thing...

Doesn't seem to be -- sorry, go ahead, Dave.

I was going to say, one important thing for us is to recognize it doesn't take much incremental volumes to make a huge difference in our charter rates and utilization. It is not a huge fleet out there in the universe. So volumes of 50,000 barrel a day increment, for example, of something, ethylene, makes a huge difference in capacity constraint and utilization and day rates. So we don't need an enormous amount of volume to be a real game changer for us.

Now from Evercore, your next question comes from the line of Jon Chappell.

So just 3 quick ones for me, hopefully. First, Niall, on the costs side, your costs came down this quarter. Obviously, you're kind of laying out a, let's call it, choppy kind of near-term rate environment. Other than bringing the vessels to in-house management -- and correct me if I'm wrong, does that save costs? Or does it not? What are some of the other cost initiatives that you're implementing? And do you think that there's more room to kind of save on that side?

Well, first of all, bringing technical management in-house, it doesn't really have much of a cost benefits, not at the level of the number of ships that we're talking about, like 5 or so. Once we get into maybe 12 or above, it may have an overall effect. On the individual ship side, it was really the $8,100 from the first quarter of 2016 was higher than we would have liked. And I think there's been more attention to it. There's also specific reasons for it. There was ancillary engines, et cetera, that needed to be repaired. So I think that the rates of Q1 is kind of the current run rate that we would expect. And of course, once you -- given that quite a number of ships in our fleet, our newbuilds, newbuilds are typically for the first 2 years cheaper than subsequent years because the -- all of the machinery parts are generally under warranty. So there is an element of, a, taking more focus than perhaps it was last year but also just the effect of some of the newbuilds kicking in.

Okay. And then another thing you mentioned, Niall, in your prepared remarks is the sequential decline in the rates associated with some of the time charters that were signed in December of '15 rolling off in the fourth quarter of '16. As I look at your fleet and the time charter coverage, it seems like there's only 4 contract renewals or expirations before the fourth quarter of '17. So to the extent that the market overall kind of stayed steady, should we see kind of very limited negative impact of a mark to market on time charters going forward? Is that pretty much behind you now?

Yes, I think the majority is behind. You'll recall that up until probably March '16 the charter rate was $900,000 or above. In the back end of '16 -- back end of '15, it was even higher. So rates coming off that level on a typical 12-month time charter for, which we've had probably 5 in Q1 of this year, $900,000 number being reset at a $600,000 number x5 does have an impact. But you're right, generally, they are now all passed.

Okay. And then my final one also on the market a little bit and just more clarification for a comment that you made in the press release and the 6-K regarding the absorbing the 38 VLGCs and 18 Medium Gas Carriers. Is that your way of saying, David or Oeyvind, that, that's the overcapacity in the market today? Or is that your way of saying that we just need to get to these bubble of newbuildings and then once there is a small uptick in volumes then you see the tightening of the market?

I think it's related to David's comment leading up to the fourth quarter of markets and so forth, and there is dynamic between the pricing of East Coast versus Gulf Coast. However, the order book, the massive order book in the Very Large Gas Carriers is clearly slightly behind us. There's 25 or 20 owned ships remaining this year. And then there's very little in '18, '19 and '20. So I think that's okay. On the midsize, instead of the immediate segment above the handys, we still have a little ways to go. So there's about 10 ships this year in '17 and '18. So that is kind of the -- what we're paying our attention to and the behavior in that particular market. Remember, they can only do fully refrigerated LPG, and that's what they're designed to do. However, we kind of need to work our way this year to see how the Medium Size Gas Carrier market where the freights -- where the direction will be. But -- so that is -- but those numbers are okay, but they're related to -- if we have additional supply, I think much will be done. But it's not going to happen over the summer.

Your next question from Morgan Stanley comes from the line of Fotis Giannakoulis.

This is Ben, sitting in for Fotis. So I guess, just turning more to the longer-term LPG trade, it looks like Middle East exports have kind of made way. I'm just curious, I guess more in the long -- in the mid- to longer term on how you see incremental exports from this region, from the U.S. And then, I guess, it looks like Canada kind of transpiring over the next few years.

The question is where are the incremental volumes coming from?

And how do you expect, yes, and how do you expect them to play out?

The incremental volumes will be associated with -- most of it will be associated with the U.S. So there's still some way to go with more supply, and it's coming, particularly on the East Coast. You've probably seen some announcements, perhaps, of the Canadians and their efforts to do some export terminals there. So there'll be decent LPG from Canada. And as you know, Canadian or primarily U.S. exports needs to travel a ways for the consumers, either to Europe, Africa, Latin America or even further Asia. So that will have an impact, clearly, soaking up existing tonnage and taking care -- well, somewhat taking care of the order book that is going to be delivered over the next couple of years. But that is the general view we have is that the VLGCs and the mid-size ships will probably go back to where they -- the traditional, the 10-year historics once the supply is here. At the minute, it's a bit challenging, as you're aware.

Right. And then my last question was on -- so just the incremental upside to the -- to petchem trade, you mentioned earlier on propylene production, it seems like that's going to increase this year. Is that something that can offer true incremental upside to that trade? Or is that also, I guess, a product that's inhibited by this export capacity?

Both. Today, the export capacity from the U.S. in terms of propylene is slightly restricted. We know for a fact that the major -- the 2 major terminal operators in the U.S. call for trying to debottleneck that. But the volume on propylene will not be here until the various PDH plants are commissioned here in Texas over the next 3, 4 months. And then we might see an uptick on the interest and demand for taking U.S.-produced propylene. So -- but that impact will mostly be seen on the handys because, as we've been repeatedly talking about, us being the largest ships doing petrochemicals. So it won't impact very much the Very Last Gas Carriers or the Medium Size Gas Carriers, but for us, it's meaningful. And to David's point, any incremental barrel that is being exported from the U.S. or generally elsewhere that goes on a handy has a big impact. So we pay close attention to any olefins and propylene as part of that.

(Operator Instructions) So the question comes -- from Maxim Group comes from the line of James Jang.

So I guess most of the questions have been answered, but you [didn't] see a trend of some northeast Asian countries, particularly South Korea and China -- South Korea and Japan, switching from LPG to natural gas. Have you seen the same kind of effect?

We haven't registered that trend. In terms of -- we are not generally involved with LPG trades to Korea and Japan. So we might not be the right people to ask about that. But clearly, if you are interested in energy, power, electricity production, natural gas is there. However, infrastructure is very expensive. But again, we are more involved when it comes to Asia for gas transportation, it's olefins. LPG, that's probably elsewhere.

Okay, got you. And with -- I know you guys mentioned '17 is going to be a little choppy in terms of earnings, and there's going to be some pressure on rates. Do you think this could be an opportune time for you to, I guess, further expand the suite? Or once this newbuild program is finished you guys are going to stand in silence for a bit?

I think the expansion of the fleet at this point in our life will be focused around contracts. So yes, we will expand the fleet. We fully intend to do it. But it will be done when we execute the proper type of charter contracts. Now I believe, and we believe, that, that could happen. But it will be happening on the back of the completion of the ethylene terminals. When that happens, there will be significant amount of export volumes that will need specialized vessels. We have the bulk of them right now, but we may need more. And if we need more, we will build against contracts, and that's how we will expand. But as far as LPG vessels in itself, I don't think the market and the clarity of the market would support something at the moment. And -- but we will -- it's very likely, James, that new construction could exist, but it will be done on a different basis than -- on a -- rather than a speculative basis.

And with that, gentlemen, there appear to be no further request for questions. So I should pass the floor back to you for closing remarks.

Thank you, Jenny. And I just want to thank everyone for joining us this morning. And hopefully, we'll back soon with an update in a few months' time. Thank you.

Thank you, Mr. Butters, and with many thanks to all our speakers today. That does conclude the conference. Thank you all for participating, and you may now disconnect. Thank you, gentlemen.