12 May 2015

Scrapping rise gives hope to dry bulk misery:

Demolition sales of dry bulk carriers have increased sharply this year despite low price of steel, which brings a ray of hope to a struggling dry bulk market in which asset prices remain under downward pressure, shipping analysts said.

In the first four months of this year, 52 Capesize vessels with a combined tonnage of 8.7 million dwt have been sold for scrapping, twice the figure of 25 units and 4.2 million dwt in the whole year 2014, noted Peter Sand, chief shipping analyst at BIMCO in Denmark.

"Scrap prices are under pressure from a general diminishing demand for steel in addition to cheap steel coming out of China," Sand said in a market report emailed to IHS Maritime. "With low scrap prices, currently around USD370 per light displacement ton [LDT] owners are more reluctant to let go of their ships despite being pressured from poor freight market conditions. However, data from the first four months of 2015 shows that more owners are scrapping their ships than ever before. The numbers are hastily approaching the level of 2012 where a record total of 70 Capesize ships where scrapped."

By contrast, during 2014 bulk carriers of all types equalling only 16 million dwt were sold for demolition, down from more than 23 million dwt in 2013. "Since the beginning of 2015 demolition has gone up for all of the ship sizes within the dry bulk segment, with Capesizes carrying the lion's share," he said.

"The high amount of Capesize demolition will benefit the segment. Although increasing scrapping was expected the actual development exceeded BIMCO's expectations. This could have a positive impact on the market. The increase in Capesize scrapping comes at a much needed time for the market. Looking at the development so far this year the fleet growth has actually been negative, with a reduction of 0.8 %."

The demolition of Panamax ships has also been on the rise in 2015, and although the development is not quite on par with the Capesizes it is still substantial. In 2015 as much as 2.6 million dwt has already been sold for demolition equalling more than half of last year's total where 4.8 million dwt were scrapped.

For Handymax and Handysize demolition has also increased in 2015. For Handymax more than 1 million dwt of tonnage has been scrapped so far in 2015, 34% more than in the same period last year. For Handysize the numbers are 2.2 million dwt so far, up 79% from last year.

However, the picture remains gloomy when it comes to valuation of second hand tonnage, according to Erik Nikolai Stavseth and Kurt Waldeland, shipping analysts at Arctic in Oslo. "Recent transactions in the dry bulk S&P market point to a further decline in vessel values, with the latest reported sale indicating a price noticeably below the latest data point. According to shipbrokers, the 2010 built Capesize Blue Everest has been sold to Greek buyers for USD27.2 million. This is close to 15% below our last estimate for a five-year-old Capesize," they said.

"The recent transaction illustrates the steep drop in dry bulk vessel values over the last few months. In the second half last year, the two 2010-built Capesizes ER Brazil and ER Beilun fetched USD49.25 million each - pointing to a 45% drop over seven months. While we fail to see any near-term triggers for the dry bulk market, we see limited downside to vessel values at this point. However, the market is still dependent on a recovery in freight rates to support vessel values going forward."

Source: his maritime 360. 11 May 2015

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