27 June 2011

Shipbreaking very unlikely to fill supply-demand gap in global tonnage:

Hopes of increased shipbreaking activities bringing about a semblance of balance between limited demand and over supply of shipping tonnage are not likely to hold good for long as the industry in the sub-continent, considered to be world's largest region for shipbreaking, is fighting a battle amidst low demand and declining prices of steel.

"The situation is rather tight given the disparity in prices that are prevailing in local and foreign markets," said Vishnu Gupta , president of Alangbased Ship Recycling Industry Association .

Considering the many factors that determine the performance of the industry, Mr Gupta is not optimistic about the shipbreaking sector coming to the rescue of shipping industry by absorbing some of the extra tonnage that it is saddled with due to heavy influx of newbuildings.

Local markets in the Indian sub-continent continued their descent to coincide with the monsoon and an enormous over supply of vessels, the sales board showed a marked sign of slowdown, noted a recent recycling market commentary by Global Marketing Systems , Inc (GMS). Demolition data of tankers and bulk vessels globally seems to paint a different picture, however.

The year so far has reported a record year for dry bulk carrier demolition. According to Braemar market insight, during Jan-May 2011, 13.6M DWT of bulkers have been scrapped, including 7.1M DWT of Capesize (over 120k DWT) bulkers. If scrapping continues at this pace for the balance of 2011, it could reach 32.6M DWT, more than three times the previous record set in 2009.

"The current rate of demolition of bulkers might offer a ray of hope in the freight markets, but this year deliveries are already outweighing scrapping by almost three to one. In Jan-May, 36.3M DWT of bulkers delivered, including 20.5M DWT of bulkers over 85K DWT. If deliveries continue at this rate for the balance of 2011, they will total over 87M DWT for the year," noted the insight. With annualised bulk carrier fleet growth based on Jan-May deliveries and demolition in the range of 10%, oversupply is expected to be an agenda for some time to come for shipping companies.

Too many ships are also troubling the tanker segment. The relative health of the freight market in 2008 had led owners to order far too many new ships, which have now started hitting the water, even as the idled very large crude carriers are returning to trading. This combination has started hitting the sector very badly.

Source: The Economic Times. 27 June 2011

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