Scrap yards are
preparing for record numbers of freighters as shipping rates tumble to all-time
lows.
Owners may demolish 40
million deadweight tons of dry bulk carriers, more than double last year’s
total, according to Arctic Securities ASA in Oslo. Rates to ship commodities
slumped 66 percent last year amid a glut of capacity, the worst performance
since the global recession.
China’s combined imports
of iron ore and coal, the market’s biggest cargoes, fell to a two-year low last
month, according to customs data. The nation last week set its lowest economic
growth target in almost a generation, at a time when delivery of new ships will
expand the fleet for a 16th consecutive year.
“The decision to scrap a
ship is reactive rather than proactive,” Sverre Svenning, the Oslo-based
director of research at Fearnley Consultants AS, said by phone March 9. “You
decide to scrap a ship once you have had a sufficiently long period of negative
earnings and you don’t see a light at the end of the tunnel.”
The Baltic Dry Index, a
measure of the cost of moving everything from minerals to grains, reached a
record-low 509 points Feb. 18, according to the Baltic Exchange in London.
Owners responded by sending more than twice as much shipping capacity for
demolition in January and February than they did a year earlier.
The gauge fell 0.9
percent to 560 on March 12. Average daily earnings for Capesize ships were
$2,830 on March 13, the lowest since Aug. 23, 2012.
‘Huge
Year’
Accelerated scrapping
could help boost shipping rates for owners. Capesizes, the biggest dry-bulk
vessels tracked by the Baltic Exchange indexes, will earn $16,000 a day on
average in 2016, from $12,500 this year, Morgan Stanley estimates.
“It’s going to be a huge
year” for scrapping, said Anil Sharma, chief executive officer of GMS Inc., the
biggest buyer of vessels for demolition. “Most likely the biggest year for dry
bulkers, especially for Capesizes.”
Not all owners are
following the trend. Nippon Yusen Kaisha, the biggest Capesize owner, has no
plans to accelerate demolitions, Brandon Kitamura, a spokesman for the
Tokyo-based company, said March 6. Demand will be boosted by the completion of
iron-ore mining projects in Australia and Brazil over the next two years, he
said.
Companies may be less
willing to get rid of ships because previous demolitions and a surge in
deliveries of new vessels mean the fleet is getting younger, according to Nigel
Prentis, the head of research at Hartland Shipping Ltd. in London. The average
age of the dry-bulk fleet at the end of 2011 was 11.4 years, according to
Clarkson Plc, the world’s biggest shipbroker. By December that was nine years.
Source: Bloomberg. 13
March 2015
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