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.
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