Ship owners active in the dry bulk market are in some tough predicament these days, as they appear to be caught between a rock and hard place, where the “rock” is the very low freight market rates and the “hard place” is the severe pressure experienced in the steel market, which in turn is negatively affecting the scrap market, i.e. the rates that owners can achieve for selling their older ships for demolition.
In its latest report, shipbroker Intermodal noted that the slowing Chinese GDP growth rate has severely impacted the dry bulk market, especially as it has coincided with the increased supply of dry bulk tonnage. As a result, daily rates for Capesizes are now trading well below the level of $10,000 from over $200,000 in 2008, with the Baltic Capesize Index (BCI) having retreated to a historic low of 311 points, back in January of 2015.
“Hence it comes as no surprise that numerous shipowners consider the demolition market as a possible solution to dispose of old large sized vessels that fail to cover their operating expenses at market’s current levels. But to conclude a perfect storm, the steel market, that is the main driving force behind prices offered by cash buyers and recycling yards for the acquisition of vintage tonnage for demolition, is currently under strong pressure as well. The latter stem from increased exports of cheap Chinese steel that is not absorbed domestically and has flooded the Indian sub-continent. Moreover, prices offered by recycling yards are also negatively affected by the large volume of bulkers that are available to be sold for scrap”, said Mr. Vassilis Logothetis, Intermodal’s Research Analyst.
Logothetis added that “the aforementioned situation has resulted in prices offered nowadays for wet tonnage to range from 210 to 390, depending on the destination, and for dry tonnage from 210 to 370. Just a year ago prices ranged from 310 to 500 for the dry tonnage and 325 to 510 for the wet, a difference of more than 100 dollars per ltd. Nevertheless, the situation in the Dry Bulk market for the Capes is so difficult that we have seen a large number of vessels finding their way to recycling yards even at these low price levels. In May alone, 15 Capes have been sold for scrap, while the same number of Capesize vessels went for scrap during the entire first five months of last year. This is something that generally characterizes the market as demo activity across all segments is higher to the one observed last year”.
He concluded that “at this point in time and given the situation in the Dry Bulk market one should expect the increased trend of vintage bulkers heading for demolition to continue up to the point where the freight market reaches a more viable equilibrium regarding supply and demand of tonnage. Having in mind the large volume of the Dry sector orderbook this will definitely take some time and at the same time it will come as no surprise if current demo price levels slide further. Nonetheless, and despite any additional price softening that could be due, the demo market is expected to continue witnessing healthy activity, as long as the situation in the Dry Bulk market remains tricky”.
Intermodal added that in the demolition market “demolition prices in the Indian subcontinent appear to have stabilized for now, following a month of significant discounts that have left the market with a lower new normal in terms of activity volume and price levels matching the year’s lows back in the beginning of March. Whether the summer season will continue in the same mood is too soon to tell. Breakers in Bangladesh and Pakistan will focus on the outcome of their countries’ respective budgets, both due before the end of the week. Should rumors for increased tax on the industry are announce, this will normally affect both prices and breakers’ appetite to acquire tonnage. On the other hand things in India seem to be slightly better, and this is evident in the presence of sales involving Indian breakers, who now seem a bit encouraged by the revival of both local steel prices and the Indian Rupee. Prices this week for wet tonnage were at around 225-385 $/ldt and dry units received about 210-370 $/ldt.”, the shipbroker concluded.
Source: hellenic shipping news. 5 June 2015