Ship-Demolition Rates Surge:

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.

“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: hellenic shipping news. 26 March 2015

http://www.hellenicshippingnews.com/ship-demolition-rates-surge/