19 May 2015

Ship launches still outpace scrapping, despite bulker orders crash:

Shipping sector sources have been trying to drum up optimism this month over the impact that the rise in dry ship demolitions and decline in new orders since January could have on the persistently bearish dry freight market. But with bulker demolitions still outnumbered by new ship deliveries, and demand for commodities set to remain subdued, many believe a balance in the market will take several years to achieve.

BIMCO, a Denmark-based shipowner association, said May 7 that 2015 could soon become a record year for scrapping dry Capesize vessels. With 52 sold for demolition in its first four months, 2015 is getting close to breaking the record of 70 Capesizes demolished in 2012, the association added. In 2014, only 25 were scrapped.

“Although increasing scrapping was expected, the actual development exceeded BIMCO’s expectations. This could have a positive impact on the market,” said BIMCO Chief Shipping Analyst Peter Sand.

However, though scrapping bigger ships eats away a big chunk of the world’s dry capacity and “looks good on paper,” Capesizes “tend to trade on contracts, not so much on spot,” a shipbroker said. Therefore, “scrapping more Capes will not necessarily make a dent in the number of ships playing spot,” he added.

Greek broker Intermodal said May 12 that the rise in Capesize demolitions was partly due to second-hand prices for older Capes falling and nearing scrap value. This suggests that Capesize owners are scrapping them because “it makes financial sense,” not because they want to “do their bit” for slimming down the world’s dry fleet, another source said.

According to BIMCO, dry Handysize and Handymax demolitions also were up on the year in January-April 2015, by 34% and 79% respectively. Also, 2.6 million dwt of Panamax capacity was scrapped in the same period, compared with 4.8 million dwt in all of 2014. But sources pointed out that barely any dry Supramax vessels went for demolition, while scrapping was still outpaced by the delivery of new vessels.

Athens-based Allied Shipbroking said this week that, while the dry fleet’s pace of growth slowed down in January-April 2015, the impact of demolitions was offset by the amount of new vessels being delivered.

January-April 2015 saw 241 new vessels delivered, but with 177 vessels sold for demolition during the same period, this added 64 ships to the world’s dry tonnage list.

“This will continue to happen while owners hesitate to scrap mid-sized ships, like Supras and Panamaxes,” said a broker.

Such hesitance was partly due to many mid-sized ships being barely 10 years old, the broker added. For example, according to Greek sale-and-purchase shipbroker Golden Destiny, 2015 began with 85% of the world’s dry Supramax fleet of 1,992 ships being no more than 10 years old. Overall, 66.7% of the world’s dry bulk fleet has been built since the start of the millennium, Golden Destiny data showed.

Owners also held back from scrapping because some of them held on to tonnage they regarded as assets, sources said.

According to a Piraeus-based broker, with ship values currently at very low levels, an owner “will buy a unit at, say, $10 million, hoping that when the market recovers, he will sell at $30 million. You can even buy now a 15-year-old Panamax at about $5 million. That’s where the big bet is.”

According to another broker: “There are many cash-rich owners, many of them Greek, who can do this, and keep these vessels in the water, not minding the cheap freight rates.”

NEW ORDERS COLLAPSE But while bulker demolitions are still outpaced by new deliveries, Clarksons Research joined the positive drill team on May 8 saying that the first four months of 2015 marked a steep decline in new orders being placed with shipyards. January-April 2015 saw dry bulk orders fall to 0.4 million dwt per month, the lowest levels since the 1990s, it said.

“This is a massive 98% reduction from the 23 million dwt peak in orders in December 2007, and probably the sharpest decline in recent decades,” Clarksons Research said. “Not really a surprise in a market where Capesize bulkers are struggling to earn $4,000/day, but a timely relief to investors with ships on the orderbook.”

But, it pointed out, despite the onset of the global downturn in 2008, the dry freight market saw two vessel order spikes in 2010 and 2013. This, it said, was “hard to explain…on strictly economic grounds” when considering that the world was already dealing with a significant surplus of dry tonnage and China’s growth engine was easing off.

On the back of these spikes, plenty of new vessels are due for delivery in coming years, with Golden Destiny estimates showing 1,066 bulkers due for delivery in 2015, 732 in 2016 and 184 in 2017.
As a result, the market will have to wait until the end of this decade for the effect of this year’s sharp decline in new orders to be felt, with Goldman Sachs predicting May 7 that “the current order books will ensure that shipping capacity continues to grow until 2017, when vessel retirements will finally outweigh new deliveries.”

Source: Hellenic shipping news. 18 May 2015

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