Slowdown in commodity
shipments leads to owners selling vessels for scrap
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The Vale Beijing anchored at Sao Marcos Bay
off the coast of northern Brazil in 2011. Commodity prices are falling because
of lower growth in China, leading to overcapacity in bulk shipping. PHOTO:
REUTERS
|
LONDON—Ship-demolition rates are up sharply
this year, as a slowdown in commodity shipping has led owners to sell their
vessels for scrap rather than operate them at a loss, brokers said.
Commodity prices are falling amid lower
demand from China and other significant importers, leading in turn to rampant
overcapacity of ships in the water.
As a result, so-called capesize vessels—the
world’s biggest carriers of commodities such as iron ore and coal—are
increasingly queuing at scrapyards in Southeast Asia. Daily chartering rates
for such ships have been hovering near $5,000 since the middle of December,
compared with a break-even point of $7,500 to $20,000 or more, depending on the
age of the vessel and its financing arrangements.
In a report this week, London-based
Clarkson Research Services said about 4.6 million deadweight metric tons of
capesize ships had been sold for scrap this year, up 368% from the
corresponding period in 2014. This year’s figure is already higher than the
total of 2014, when 4.2 million deadweight metric tons of capesize ships were
recycled.
The tumbling freight rates, which brokers
say aren’t expected to recover soon, come as iron-ore prices slumped last week
to their lowest level since 2008 amid concerns that weaker Chinese demand and
increased mine output will exacerbate a global supply glut. Iron ore is widely
used in construction projects and industrial applications, and a report this
month by Beijing that economic output this year would fall to 7% from 7.4% in
2014 sent the Baltic Dry Index, which measures freight rates, to its lowest
point in 30 years.
‘In the past, it would take a
while to charter a capesize vessel. Now there is one available every single
minute, and that’s not an exaggeration.’
—London-based broker
“Combine this with a minimum 25%
overcapacity in dry-bulk carriers that move iron ore to China and most owners
are left with no options other than selling their ships for scrap,” a
London-based broker said. “In the past, it would take a while to charter a
capesize vessel. Now there is one available every single minute, and that’s not
an exaggeration.”
Brokers said at least eight dry-bulk companies
have filed for bankruptcy protection since the start of the year, and the
number might well double before the year ends.
“With more than 30 capesize bulkers sold
for demolition already this year and charter rates still struggling to justify
employment at present, it looks set to be an increasingly frantic year of
scrapping in the dry sector,” U.S.-based GMS, the world’s biggest cash buyer of
ships for recycling, said in a report this week.
A Singapore-based broker said deep-pocketed
owners who can afford to hold on to their capes are parking them at Asian
ports.
“There are at least eight in hot layup,
meaning they are anchored, engines mothballed and crew cut to at least half in
order to rein in costs,” the broker said. “We haven’t seen it like this since
the 2009 global economic crisis.”
He said large mining companies such as BHP
Billiton Ltd., Vale SA and Rio Tinto PLC are still chartering some capes to
move commodities from Australia to China, “but they are far fewer than numbers
in November at ridiculously low prices.”
Overall ship-breaking activity is up 37%
this year, according to Clarkson. Indian-subcontinent yards are winning the
majority of the business. Scrapping in Bangladesh is up 85% in terms of tonnage
compared with the same period last year, while in Pakistan and India, demolition
rates are up 19% and 7%, respectively.
“Even if scrapping rates double or triple,
it will still be a drop in the ocean,” the London-based broker said. “This year
alone, more than 1,000 new bulkers will be delivered.”
Source: The Wall Street Journal. 24 March
2015
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