24 October 2011

Demolition of dry bulk ships hitting new records: Navios execs

Demolition of dry bulk ships has reached record levels in deadweight tonnage terms due to a combination of low freight rates, high fuel costs and high prices being offered by ship breakers to owners, executives with a major listed dry bulk shipowner said Monday.

As of October 14, 300 dry bulk carriers, aggregating 19.6 million dwt, had been sold for scrap so far this year, beating by 160% the previous record of 12.2 million dwt set in the whole of 1986, Frangou Angeliki, chairman and CEO of Navios Maritime Partners told analysts on a conference call to discuss the company's third-quarter results.

The number of dry bulk carriers sold for demolition so far this year represented 3.65% of the global dry bulk carrier fleet, she said.

Last year 5.8 million dwt of dry bulk tonnage was sold for scrap, representing just 1.3% of the global fleet.

George Achniotis, senior vice president of business development at Navios Maritime, said an average of 1.2% of the world fleet was committed for demolition each year in the period 2000-2010, inclusive.

Of the 300 dry bulk carriers sold for demolition this year, 64 were Capesize bulkers, but gave no comparison for prior years, he said.

At the current level of demolition, Achniotis said, the industry is set to commit 24.9 million dwt of dry bulk tonnage for demolition in the whole of 2011, representing 4.7% of the existing global dry bulk fleet.

The ongoing problem of delayed deliveries of new ships from ship builders was continuing this year, with around 31% slippage from the schedule so far in 2011 as of the end of September, he said.

Last year, the size of the global fleet swelled to 536.4 million dwt, up from 459.2 million dwt, Achniotis said. During 2011, the rate of slippage from scheduled deliveries from the yards amounted to 38%.

For 2011, while the amount of new ships entering the market was likely to exceed that for 2010, he said, "the rate of slippage and taking the volume of scrapping so far this year, the net fleet growth may not be as large as seen in 2010."

Around 11.4% of the global dry bulk fleet was over 20 years of age, of which 11.4% is more than 25 years, "which gives scrapping potential for another 106 million dwt," Achniotis said. HIGH INCENTIVE FOR SCRAPPING

Achniotis said the incentive for owners of such ships to scrap, because of low freight rates and the current price levels being offered to shipowners by demolition yards would yield an owner approximately $11 million-$12 million for a Capesize, which was the equivalent to around 30% of the secondhand value of a five-year-old Capesize bulk carrier.

Navios is a major carrier of iron ore, coal and grain, owning and operating 6 Capesize dry bulkers, nine Panamaxes and one Supramax. According to a slide presentation at the analysts' call, Navios Maritime lists Constellation Energy, Rio Tinto, ArcelorMittal and Vitol from the world of metals, mining and energy among its top 15 customers.

The shipowner derived 7.5% of its revenues in Q3 from Constellation Energy, 5.7% from Rio Tinto, 1.09% from ArcelorMittal and 1.3% from Vitol. Its biggest customer was STX Pan Ocean, one of the world's largest vessel owner/operators and carrier of iron ore and coal in its own right, and accounting for 13.2% of Navios Maritime's revenues.

Earlier Monday, the company reported a sharp increase in 3rd-quarter revenues, helped by the effects of operating a larger fleet, but flat income, caused largely by a lower fleet utilization rate.

In the 3 months to September 30, revenues rose to $48 million from $38 million in the corresponding 2010 period, but net income only grew to $16.6 million from $16.3 million a year earlier.

The company said the increase in revenue was largely attributable to operating a fleet with two additional ships in Q3 2011 compared with Q3 2010.

Navios reported fleet utilization in Q3 2011 of only 90.8% compared with 99.9% in Q3 2010. It did not specify what caused the lower utilization rate, other than attributing it to "unspecified off-hires." This cost the company $3.8 million in the quarter, it said.

Lower freight rates resulted in reduced time charter equivalent earnings of $28,992/day per ship in Q3 2011, down from $29,978/day per ship in Q3 2010.

In the first 9 months of the year, revenues rose sharply to $136.5 million from $100.7 million in the corresponding 2010 period. Net income rose to $46.7 million from $42.1 million.

Source: Platts. By Anthony Poole (anthony_poole@platts.com). 24 October 2011

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