16 July 2017

Falling Capesize Rates Could Trigger More Scrapping Activity

The market for ships scrapping has been rather slow over the course of the past few weeks for a number of reasons, chief of which the shipowners’ reluctance to part with some of their older ships, but also because of the confusion reigning the demolition market at the moment. However, things could well be starting to pick up, as the continuous fall of the Capesize market, could trigger more sales.

In its latest weekly note, the world’s leading cash buyer of ships, GMS said that “renewed sense of purpose and aggression to conclude units seemed to inject itself into the market this week – particularly in Bangladesh – where we finally have confirmation that the prohibitive taxes announced in the recent budget will be reversed for the next two years (at the very least). Influential members of the Bangladesh Ship Breakers Association (BSBA) had reportedly lobbied the finance ministry since the initial announcement was made, whereby a 15% increase in VAT was to be levied on all incoming ships. This week, the BSBA appear to have finally succeeded in getting these duties overturned. Subsequently, Cash Buyers witnessed an increase in demand and enquiries emerging from Bangladesh as prices shot up by least USD 20/LDT from the inert and hesitant levels of last week”.

GMS added that “as a result, a number of deals were reportedly concluded to local buyers this week and some of those units (particularly the larger LDT vessels) that were likely destined for Indian / Pakistani shores will probably be redirected towards Chittagong in order take advantage of the renewed / hotter pricing on offer there. At odds with the demand has been the constant rains across most of Bangladesh and have left the industry in a paralytic state for a better part of the last two weeks. As such, most of the recently delivered vessels are simply being stockpiled at local yards making it difficult to gauge where local steel prices will level off once the cutting / reselling of ships steel resumes. For now, it is expected that demand and pricing should remain firm going into the remainder of July and it is likely that a number of high priced deals (market units or any remaining tonnage in various cash buyer hands) would be concluded at increasingly firm numbers”, it concluded.

In a separate note, Clarkson Platou Hellas said that “the increase in activity that was expected after the Eid festivities has not materialised as of yet and in hindsight this has not been a bad thing since local sentiment is still weak particularly as another rumour surrounding the Bangladeshi budget indicating that the 15% VAT on the importing of vessels for recycling may actually go through, There has only been a trickle of supply so far except for the occasional larger LDT sized tanker, to keep the market from grinding to a complete halt at present. However with falling Capesize freight rates, we could start to see vessels emerging from this sector which has lain dormant compared to last year where 67 had already been sold for recycling compared to the mere 19 so far this year. Although looking across to Europe there have been further rises in the Turkish recycling market after USD has been weakening against the Turkish Lira and as well as strong demand from local steel mills, this could continue with the supply of tonnage from geographically positioned vessels in the Mediterranean continuing to be sparse and not meeting demand locally that is needed”.

Meanwhile, Allied Shipbroking reiterated that “some slight improvement in terms of activity was being noted this past week, with the number of demo candidates being circulated showing signs of new life. This may well end up being the markets undoing, with the increased availability likely to allow for a softening in prices being quoted by cash buyers. The market seems to now be mainly moving by Indian and Pakistani breakers, with Bangladeshi buyers being taken out of the current competition by the ongoing dispute with regards to the proposed tax hikes. In terms of local steel prices, we are seeing a fairly stable market for the time being, however this has not convinced for any speculative buying to take place over the past two weeks, showing the jitters being felt by most buyers given that we are now firmly in the monsoon season and appetite amongst breakers is relatively subdued”, it concluded.

Source: hellenic shipping news. 13 July 2017

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