“Market to upturn from H2 this year” – Woori Investment
The rapid increases in ship demolition now raise expectations to improve the freight market.
You, Jae-Hoon, senior researcher of Woori Investment & Securities, said on Mar. 9, “The sustainable demolition of aged ships would accelerate the improved tonnage supply and demand in the shipping market,” predicting that “in consideration of their backlog order volume on hand, Korea’s Big 3 shipbuilding players are expected to receive some speculative orders starting in H2, 2012.”
According to researcher You, the global ship demolition in 2011 recorded 39.5 million dwt, up 54.5% on 2010. The latest demolition figures over the past three months are more surprising. The demolished tonnage amount during the last three months posted 4.2m-dwt, which is a whopping 54.1% increase on a monthly average demolition of 2.7m dwt during 2009-2001. In particular, last Feb. alone saw the demolition of 5.3m dwt, a monthly record-high, since May 2003 when it recorded the ever highest demolition of 5.6m dwt.
Mr. You ascribed the latest increase in ship demolition to “the international oil price hike and the steady firm demolition price,” arguing that “the demolition demand for aged vessels which are suffering higher fuel cost increases in line with the prices of steel scrap and demolition steadily staying firm while the demolition of aged ships is growing at the current shipping doldrums.”
By vessel type, boxships have been demolished at a monthly rate of 19,690-teu over the last three months, which is a jump of 129.9% on the monthly demolition average of 8,566-teu posted during 2010-2011. Tankers further recorded the monthly average demolition of 1.54m dwt over last three months, up 63.3% from the monthly demolition average of 0.9401m dwt during the last two years. The bulker tonnage scrapping which had turned decreasing since H2 last year has lately changed to increasing.
According to Clarkson Research Intelligence, ship demolition for this year is expected to reach 54.1m d wt. Researcher You foresaw that the ongoing explosive increase in ship demolition will relieve tonnage surplus starting in 2014. As the timing for tonnage expansion required is expected to come starting in 2015, some speculative orders are expected to be placed from H2 this year at the earliest, he said. Newbuilding prices have fallen lowest since the global financial crisis and Korea’s Big three shipbuilding players capable of constructing eco-friendly ships are expected to see their backlog orders on hand start dropping rapidly from this year. In this circumstance they can look forward to securing fresh orders.
Tonnage replacement demand based on the growing ship demolition is expected to greatly rise in the wake of euro-zone finance ministers’ talks held on last Feb. 21 in which they had discussed the issue of imposing carbon tax. Mr. You estimated that “since the greenhouse gas restriction initiated by IMO is on the table of euro-zone authorities, the timing of enforcement for the regulations of carbon tax or emission trading system (ETS) may come earlier.”
Those aged vessels over 20 years will create replacement demand for 99 boxships of 3,000 to 6,000-teu each and for 53 tankers of 100,000 to 300,000-dwt class each. Researcher You predicted, “Tonnage replacement demand on a basis of very large eco-friendly vessels is expected to generate fresh newbuilding orders worth US$ 15 billion which are likely to be gradually secured starting in H2 this year.”
Source: The Maritime Press. By Paul Yoon. 12 March 2012