14 May 2015

Higher charter rates keep more container ships from scrapyards

Fewer container ships will be moving to the scrapyards this year, analysts say, as charter rates, especially for Panamax ships, continue to rise.

The number of vessels headed for demolition has almost halved year over year, according to data from Sea-web.com, a sister product of JOC.com within IHS Maritime & Trade.  Year to date, 39 container ships have been recycled, almost half of the 77 that were recycled during the same period in 2014.

Last year, 378,000 twenty-foot equivalent units were removed from the world fleet. This year, however, that number is expected to drop to around 300,000 TEUs, according to Peter Sand, chief shipping analyst at the Baltic and International Maritime Council.

Analysts were already expecting the number of scrapped ships to be low this year, after the price of Chinese steel began to plummet.

In February, analysts such as Sand said the changing numbers were due in large part to the influx of cheap Chinese steel now on the market. Between December 2014 and February 2015, the price of steel dropped over $100 a ton as overcapacity prompted Chinese steel enterprises to slash prices in an effort to boost exports.

Since the scrapping market has been nearing “a crossover point, where the value of the ship is greater than the scrap value, making the ship operationally viable for the next months,” Krispen Atkinson, an IHS Maritime business analyst, told JOC.com.

It’s not just steel that’s playing a part in the scrap market anymore, analysts say.

Charter rates have increased substantially in the past few months, Keyur Dave, finance chief at Singapore-based cash buyer Wirana Shipping Corporation, told IHS Maritime 360, a sister product of JOC.com

"Charter rates for container ships have gone up a lot and, due to this, owners are not so keen to sell vessels for scrap," said Dave.

Daily charter rates for Panamax container ships are now as high as $17,000, 41 percent higher than they were last year.

As freight rates show no sign of a sustained recovery, Dave said he expects capesizes, more than anything else, to account for the majority of scrapped ships this year.

Forecasts, however, have been off before. Vessel demolition was expected to hit 500,000 TEUs last year — 122,000 more than what eventually arrived in scrapyards after idle vessels hit near-record low levels during a slack winter season and scrap prices fell from $500 per light displacement ton to $450/Ldt.

Source: 11 May 2015

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