According to the Baltic Exchange, the average scrap prices of bulk carriers delivered in China have plunged to $450 per LTD, the 3rd consecutive week of decline. These prices tend to have a positive correlation with the iron ore price, as they both reflect the supply versus demand of the ferrous market.
The iron ore spot price in China began to fall at nearly the same time as the scrap prices. Based on its swap curves, the iron ore price has likely entered a downtrend channel, which implies that scrap prices may drop further.
In September of this year, there were 35 bulk carriers scrapped, amounting to around 2 million deadweight tonnes, lower than the 2.4 million deadweight tonnes in August.
In light of the falling demolition prices, owners’ incentives to scrap vessels may likely be dampened. Combined with the continuously strong pace of new building deliveries, it is possible that the recovery of the dry bulk freight market in short term is cloudy.
Source: Hellenic Shipping News (Sourced from ICAP Shipping). 17 October 2011