08 September 2011

Rise in scrapping looks good for bulkers:

Braemar Seascope says that it has noticed a marked increase in ship scrapping, and that this should represent good news for the dry cargo sector and maybe the whole shipping and shipbuilding industry.

Breamar Seascope expects ship scrapping to result in the supply of new bulk cargo tonnage to match market demands more closely than previously thought

Braemar’s demolition brokers have been working extra hard in 2011, in contrast to other shipbrokers who note depressed freight markets, particularly for bulk cargoes. The company says that although dry cargo demand growth is running at strong levels - due to the twin processes of industrialisation and urbanisation in emerging markets, and promising to match the annual 5.2% growth witnessed during the 2004 to 2008 boom years - fleet growth resulting from massive newbuilding orders has led to the currently depressed freight market for dry bulk carriers. According to Braemar, bulker fleet gross growth (i.e. counting new deliveries but not scrapping) is likely to be in the order of 12% a year until 2013 as we add more than 3,000 newbuildings to the circa 8,100 ships that existed at the end of 2010.

But Braemar says that scrapping can make a difference in these markets. In order to bring net fleet growth (i.e. deliveries minus deletions) into line with demand growth expectations, every bulk carrier built before 1985 - nearly 1,500 ships – would have to be scrapped by the end of 2013. This would bring fleet growth down to an average 6.3% a year. In other words, to return supply and demand growth to balance, the industry must scrap 12 bulk carriers every week for the next two years and four months without ordering any further bulkers for delivery before 2014.

The good news is that demolition at these levels is less outlandish than it may seem. According to the Braemar Seascope Demometer, 409 bulk carriers totalling almost 20 million dwt were sold for demolition in 2011 up to the end of August, at a rate of over 11 a week.

This amount of scrapping far exceeds previous records of 11.8 million dwt in 1999 and 11.2 million dwt in 2009. Braemar’s forecasts suggest that if scrapping continues at this rate for the balance of 2011, about 30 million dwt could be removed from the bulk carrier fleet, offsetting the 85 million dwt expected to be delivered in 2011.

Braemar Seascope research manager Mark Williams, says: “There’s a good chance that bulk carrier fleet growth can be kept down to 9% this year if these levels of scrapping keep up. We just have to hope that the global economy pulls out of the doldrums and that demand keeps up with expectations.”

Source: Motor Ship. 07 September 2011

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