Ship owners are expected to hasten the scrapping of older vessels:

As long as freight rates are plummeting and oversupply issues are on the forefront, ship owners are expected to hasten the scrapping of older vessels, in order to make room for the new ones, which currently are flooding the market. In an indication of the dreadful state of the dry bulk market in particular, yesterday, the BDI (Baltic Dry Index) reached another record low, ending at just 651 points, down by 1.66% on the day. 

In its recent report, Golden Destiny (GDSA) said that “in the demolition market, the volume of demolition transactions has shown strong signs during the first month of the year with appetite for large sized vessel unit disposals. The Bangladesh shiprecycling industry has fully opened, but the activity is very light due to the ongoing tax issue that the Bangladesh Shipbreaking Association tries to resolve. Scrap prices for dry and wet units have started to follow an upward revision with China closing neared with the rates offered in the Indian Subcontinent region” said the Pireaus-based shipbroker. 

It went to mention that “levels for dry and wet units have started to exceed $500/ldt, with signs for further vessel disposals as rates keep firm and freight earnings do not support the trading of vintage tonnage. Notable demolition deals in the crude tanker market the disposal of suezmax tankers underlining the dark outlook of this segment with hopes for similar units to follow as a remedy to the oversupply. 

The week ended with 15 vessels reported to have been headed to the scrap yards of total deadweight 988,345 tons. In terms of the reported number of transactions, the demolition activity has been marked with a 12% week-on-week decline, due to 57% and 25% lower volume of demolition transactions in the bulk carrier and liner segment respectively, whereas there has been a 2.1% decline regarding the total deadweight sent for scrap. 

In terms of scrap rates, the highest scrap rates have been achieved this week in the crude tanker segment by Bangladesh and Pakistan for suezmax units at $510/ldt. Tankers have grasped the lion share of this week’s total demotion activity, 33%, with India being on the frontline. 

At a similar week in 2011, demolition activity was down by 20% from the current levels, in terms of the reported number of transactions, 12 vessels had been reported for scrap of total deadweight 710,976 tons with bulk carriers grasping 50% of the total number of vessels sent for disposal. 

India and Pakistan had been offering $465-$475/ldt for dry and $500/ldt for wet cargo, while Bangladesh market had been inactive from the demolition scene” concluded Golden Destiny.

In a separate report, Clarkson Hellas mentioned that “despite the Far Eastern focus on their New Year festivities this week, the market maintained its recent busy schedule, although the sales reported were definitely down from last week. Whilst Bangladesh is open for business, rates on offer are lower than their counterparts from India and few units are being positioned for delivery to Chittagong. Many parties may still be apprehensive selling to this area until such a time, several beaching tides come and go and deliveries/subsequent beachings are completed without any delay or hindrance. 

Indian breakers continue to lead the way in respect of pricings and activity. Rates firmed further this week as the breakers saw steel prices and the currency market maintain its recent steady/positive impetus creating a ‘feel good’ factor internally and thus, the improved sentiment from the waterfront lead to some significant increases in their price indications. All eyes will now fall on China to see how the markets open after their New Year holidays. If they continue in the same vein as they were prior to the holidays, then we could finally see a healthy market with attractive rates from all the major breaking destinations.

Finally, Shiptrade Services also said that “Bangaldeshi market is open but buyers offer levels below those of the rest of the subcontinent. India continues to offer firm levels, and some say extremely optimistic. Pakistan moved at the same pace with buyers offering extremely firm levels. China had holidays and as such, this week was quiet for this market” it concluded.

Source: Hellenic Shipping News Worldwide. Nikos Roussanoglou. 3 February 2012

http://www.hellenicshippingnews.com/News.aspx?ElementId=b93edf57-933c-44f6-9ebc-d3da6d1479e9

Shipping Corp plans to sell 13 ships for breaking by March:

The country’s biggest ocean carrier, the state-run Shipping Corp. of India Ltd, plans to sell up to 13 ageing vessels for breaking by March as it looks to shore up performance.

“Our plan is to sell 15–17 ships this fiscal, out of which we have sold 4 ships so far,” said Arun Kumar Gupta, a director at Shipping Corp.’s technical and offshore division. On average, these ships are 25 years old.

SCI runs a fleet of 82 ships, including bulk carriers, oil tankers and product and chemical carriers. It has another 26 ships under construction at various Indian and overseas yards.

Globally, fleet owners are disposing uneconomical assets as new ships enter service at a rapid pace and increase the number of modern, more efficient vessels.

As a result, charterers (those hiring ships) are showing less preference for ships built 20-25 years ago.

Shipbreakers globally have chopped up ships with a combined cargo-carrying capacity of 33 million dead weight tonnes, or dwt, since January, a 64% increase over the same period last year, according to London-based Clarkson Research Services, a unit of Clarkson Plc., the world’s largest ship broker.

In terms of numbers, 786 ships have been demolished globally so far this year, compared with 732 in the same year-ago period.

The main driver behind the rise is a near threefold surge in dry tonnage (capacity) sold for scrap, which has risen 290% to 19.6 million dwt this year, Clarkson Research said.

“It is not viable to operate 25-year-old ships because charterers do not want vintage vessels,” Gupta said. “We have to spend more on repairs and maintenance of older ships. Besides, the acceptability of such ships at ports is less. When freight rates are under pressure, there is no point running older ships and keep sustaining losses.”

Shipping Corp. reported a loss of Rs.146.46 crore for the 1^st half of this fiscal year, compared with a net profit of Rs.450.46 crore a year earlier.

It earned Rs.32.41 crore from the sale of 2 of the 4 ageing ships in the first half, compared with Rs.143.49 crore from the sale of 6 ships a year earlier. The other 2 ships were sold in October and the sales will be recorded in the 3^rd-quarter results.

Much of the losses (Rs.140.6 crore) came in the 2^nd quarter when the firm sold just 1 ship for scrapping, earning Rs.20.13 crore, compared with Rs.128 crore earned in the year-earlier 2^nd quarter from the sale of 5 ships.

In the year to March 2011, Shipping Corp. earned Rs.200.98 crore from the sale of 8 ships for dismantling.

Shipping Corp.’s finance director B.K. Mandal explained that the main contributors for the 2^nd quarter loss, apart from depressed freight rates, were lower income from the sale of ships, higher depreciation and ship fuel costs, and an increase in the interest cost due to the revaluation of foreign currency loans.

“In a dire market, (both dry bulk and tanker) owners may opt to scrap even younger vessels due to weak freight markets,” said Erik Stavseth, a shipping analyst at Oslo-based investment bank Arctic Securities ASA. Stavseth said there are three ways to restore the supply-demand balance and help return the shipping industry to profitability. These include scrapping vessels, laying up ships and refraining from ordering new ships.

Shipping Corp. has lost more than half of its value on BSE this year, while the Sensex has shed about 20%.

On Thursday, Shipping Corp.’s shares fell 1.5% to Rs.61.45 on BSE and the benchmark index dropped 1.9% to 16,461.71 points.

Source: Live Mint. By P. Manoj (p.manoj@livemint.com). 18 November 2011

http://www.livemint.com/2011/11/17211108/Shipping-Corp-plansto-sell-13.html?atype=tp

Great Eastern Shipping likely to sell older ships for scrapping; profit falls 84%:

Great Eastern Shipping Co. Ltd, India’s biggest private ocean carrier, said it may consider selling more older ships on its fleet after second-quarter profit plunged 84% from a year earlier as excess supply of vessels crimped rents.

“We would be happy to sell older ships, where the cost of holding on to them is pretty high in terms of the higher cost to be incurred on maintenance,” G. Shivakumar, chief financial officer of Great Eastern, told analysts on Monday in a conference call. He, however, said that it was not a good time to sell younger ships because of depressed asset values.

Great Eastern’s net profit, including that at its units, fell to Rs.27.31 crore in the three months ended 30 September from Rs.168.65 crore a year earlier, the company said in a statement. Revenue rose 3.3% to Rs.678.76 crore.

“Freight rates have been affected by the over supply of ships rather than lack of demand,” said Nikhil Jain, an assistant research manager at Drewry Maritime Services Pvt. Ltd. “It’s going to take some time to get the balance right for demand and supply. We expect the rates to hover at this level for at least next 6 months.”

The company said profit was also hit by depreciation of the rupee against the dollar. The company, including its units, reported a foreign exchange loss of Rs.20.42 crore in the September quarter compared with a loss of Rs.4.6 crore in the year earlier.

Great Eastern currently owns a fleet of 35 ships including 25 tankers and 10 dry bulk carriers while its offshore oilfield services unit Greatship (India) Ltd owns 19 offshore assets.

The company sold 7 vessels, including 6 tankers and 1 dry bulk carrier, in the year ended 31 March for dismantling. Since April this year, it has sold 2 more tankers for scrapping.

In addition, it has committed to sell the three oil supertankers it had ordered from South Korea’s Hyundai Heavy Industries Co. Ltd. The firm had to take an impairment hit of about Rs.85.70 crore in the last fiscal year as the agreed selling price was lower than the contracted purchase price.

Shivakumar said that a turnaround in the shipping industry would depend largely on dismantling of younger ships for scrap. “If the bad rates continue for another year or so, it will lead to a wholesale scrapping of sub-20-year-old oil tankers and bulk carriers. This will reduce the structural oversupply in the market and lead to a turnaround,” he said.

Last week, Greatship Global Offshore Services Pte Ltd, the Singapore unit of Greatship (India) Ltd, said it had cancelled the shipbuilding contract with Mazagon Dock Ltd for one of the two multipurpose support vessels used in offshore oil drilling operations after the state-run shipbuilder slipped on the delivery schedule. Mazagon Dock will refund the advance paid by Great Eastern for the construction of the ship. Great Eastern declined to disclose the amount it will get as a refund.

The two ships were ordered in 2007 and were slated for delivery in 2010. “We thought it was better to cancel the contract as we were not able to ascertain whether the ships would be delivered within a reasonable time-frame,” Shivakumar said, adding that Great Eastern was working with Mazagon Dock to get a fix on the delivery date for the second vessel.

“We expect a lot more stress in the shipping market in the coming months,” Shivakumar said.

On Monday, Great Eastern Shipping stock fell 2.6% to end trading at Rs.223 on the Bombay Stock Exchange, while the benchmark Sensex dropped 0.43%.

Source: Live Mint. By P. Manoj (p.manoj@livemint.com). 15 November 2011

http://www.livemint.com/2011/11/14212119/Great-Eastern-Shipping-likely.html?atype=tp

Scrapping of older vessels to intensify in coming months, says Braemar Seascope:

So far this year, demolition of older vessels has been feverish, in an attempt by ship owners to help alleviate the tonnage oversupply pressures that the global shipping market has been dealing with, in almost every shipping trade, from dry bulk to tanker.

According to Rodney North, Braemar Seascope Director in Demolition, the level of scrapping activity in the dry bulk segment so far this year, is 400% more than in 2010, while in the tanker sector levels are approximately 25% lower than in the previous year.

But, as Mr North says in an interview with Hellenic Shipping News Worldwide, the size of the orderbook and the number of vessels delivered from shipyards around the world has been such, that the rate of scrapping has done little to diminish the global fleet, thus applying pressure to freight rates. As he says, scrapping activity must continue to remain high and increase in the coming months and years, in order for the shipping industry to recover and return to a healthier balance between demand and supply.

How has the demolition activity been progressing so far this year both in the tanker and dry bulk segments?

• Bulker - 23.6m dwt sold for demo in 2011, 400% higher than in 2010 at same point. 
• Tanker - 8.25m dwt sold for demo in 2011,  25% lower than in 2010 at same point.

In 2011 the demolition market has been dominated by sales of dry bulk vessels with a notable number of larger lightweight vessels i.e. panamax and capesize vessels being sold for scrap.

For the most part activity relating to tanker scrapping has been subdued compared to the number of dry vessels being sold for demolition. This is partly because the vast majority of single hull tankers have already been phased out.

Over the last few months we have seen a greater supply of overaged double hull tankers coming onto the market, especially late 80s and early 90s built MR and Aframax tonnage, although this trend is likely to spread to all tanker tonnage.

Overall this year has seen prices rise steadily with small peaks and troughs for both wet and dry tonnage respectively, with levels well in excess of US$500/Ldt being maintained throughout the majority of the year.

Tanker demolition has been somewhat more complicated this year with new regulations being imposed in Bangladesh whereby all tankers have to be gas free for man entry and hot works (the same as in India). Pakistan has been the main beneficiary of this new regulation with many owners unwilling to undertake gas free cleaning for hot works at their expense prior to arriving at the final breaking port. Many of the cash buyers have been left having to purchase vessels on an ‘as is’ basis, cleaning the vessel at their cost and expense before undertaking the final voyage to India or Bangladesh to satisfy the needs of the buyers there. The vessels that are gas free for man entry and hot works have seen a premium in terms of the prices being offered this year.

Do you think these levels of activity are enough to help alleviate oversupply pressures in both markets?

No. According to our Research Department this year will see a net bulk carrier fleet growth of 10% compared to a 6% demand growth, while the figures for tankers are at 6% and 2% respectively.

As it stands given the current number of newbuilding deliveries and those projected for the next two years, even with large number of vessels being scrapped the global fleet is still set to grow. Supply is still exceeding demand and this will continue unless we see a significant increase in the amount of vessels being scrapped or we see a marked increase in newbuilding cancellations.  The question also remains as to whether the demolition market can sustain increasing numbers of scrap vessels, and the possibility of oversupply of scrap tonnage leading to a fall in prices.

Do you expect that pressure from a tonnage supply point of view will improve next year?

No.  As far as bulk carriers are concerned we anticipate a net fleet growth of 8%-10% as against a steady demand increase of 6%

In terms of scrap prices offered, would you say that they are attractive to ship owners or not?

Yes.  For example if selling today, owners could expect to realise US$16million to $18m for a single hull VLCC and US$21m-$22m for a first generation double hull VLCC (the latter having a higher lightweight and therefore higher price). Considering this against the background of owners facing negative spot market earnings on the major trading routes, it is clear there is pressure on potential sellers to seriously consider taking advantage of the current strong demolition levels. Owners purchasing older tonnage are naturally using the current demolition value of the vessel as the starting point in terms of valuing the vessel.

This year has seen historically very strong demolition prices, with prices now around US$500/Ldt being offered for all tonnage types for delivery on the Indian subcontinent.  Combined with falling second hand values and depressed freight rates, demolition values should be considered attractive for Owners with potential scrapping candidates.

How has the situation regarding the ban of demolition activity in Bangladesh been affecting the market so far?

Over the past year Bangladesh has seen numerous closures and resumptions in shipbreaking activity relating to moves by the High Court and the Bangladesh Environmental Lawyers Association relative to the implementation of improved health and safety procedures and recycling regulations. Overall the impact on prices has not been negative, with Pakistan and India remaining aggressive even in the periods of Bangladesh’s absence. The main effect of the various openings and closures of the Bangladesh Shipbreaking market has been to create volatility with cash buyers and breakers speculating on price against anticipated demand fluctuations. In the past when Bangladesh has been unable to purchase vessels for long periods, we have seen China absorb some tonnage finishing in the Far East, as Bangladesh was removed from the competition,  and India being that much further to ballast to with high bunker prices. However, more recently the very firm prices available from India and, to a lesser extent Pakistan, have negated the influence of Bangladesh’s absence with China simply being unable to compete on the larger lightweight vessels.

Do you think that demolition activity will be more intense in the months to come?

In short YES. With the outlook for global trade growth recently worsening and supply still far surpassing demand, it would seem inevitable that as more and more vessels fail to make a profit or even break even, owners could be left facing the alternatives of cold lay-up or demolition.

Source: Hellenic Shipping News Worldwide. By Nikos Roussanoglou. 7 November 2011

http://hellenicshippingnews.com/index.php?option=com_content&view=article&id=56459:scrapping-of-older-vessels-to-intensify-in-coming-months-says-braemar-seascope-&catid=1&Itemid=61

Shipbreaking intensifies on low freight rates, higher scrap prices:

NEW YORK (Scrap Monster): More dry bulk ships are destined for demolition and end up in scrap yards for recycling due to a combination of low freight rates, high fuel costs and high prices being offered by shipbreakers to owners.

The demolition of dry bulk ships has already reached record level in deadweight tonnage terms, according a report by Platts. As of October 14, 300 dry bulk carriers, aggregating 19.6 million dwt, had been sold for scrap so far this year, beating by 160% the previous record of 12.2 million dwt set in the whole of 1986, Frangou Angeliki, chairman and CEO of Navios Maritime Partners told analysts on a conference call to discuss the company's third-quarter result, Platts report added.

Meanwhile, the rise in demolition activity has raised concern about the export of hazardous wastes such as asbestos, PCBs, residue oils and heavy metals from developed nations to developing nations. Legal experts and NGOs that attended the 10th Conference of the Parties to the Basel Covention at Cartagena in Colombia voiced the voiced the concern that the IMO’s Hong Kong Convention will not stop hazardous wastes from being exported to the poorest communities and most desperate workers in developing counties. The Hong Kong Convention, which was adopted in 2009, but has not yet been ratified by a single country, has no intention of minimizing the movement of toxic ships to developing countries.

Currently the 1989 Basel Convention is the only legal instrument on transboundary movements of waste, and the only legal tool developing countries can successfully use to stop toxic ships from entering their territorial waters.

The developing countries who wanted the Basel Convention to be in force was supported by the Basel Action Network and the NGO Shipbreaking Platform, a global coalition of labor rights and environmental organizations dedicated to promoting safe and environmentally sound ship recycling and preventing toxic ships from disproportionately burdening developing countries. "The Hong Kong Convention is radically different from the Basel Convention as it puts the costs and liabilities of waste management on the importing state and not the polluter – who in this case is the ship owner", said Ingvild Jenssen, Director of the NGO Shipbreaking Platform.

"The Hong Kong Convention does not even prohibit the dangerous beaching method, a substandard method of ship dismantling whereby ships are broken up on tidal beaches by untrained and unprotected workers, causing severe pollution, injuries and deaths." "The Basel Convention clearly considers that illegal traffic of hazardous waste is a criminal activity. The Hong Kong Convention, however, does not require the criminalization of illegal transfer of hazardous waste", added Dr. Marcos Orellana from the Centre of International Environmental Law (CIEL)

Last year 5.8 million dwt of dry bulk tonnage was sold for scrap, representing just 1.3% of the global fleet. The number of dry bulk carriers sold for demolition so far this year represented 3.65% of the global dry bulk carrier fleet. George Achniotis, senior vice president of business development at Navios Maritime, said an average of 1.2% of the world fleet was committed for demolition each year in the period 2000-2010, inclusive.

Of the 300 dry bulk carriers sold for demolition this year, 64 were Capesize bulkers. At the current level of demolition, Achniotis said, the industry is set to commit 24.9 million dwt of dry bulk tonnage for demolition in the whole of 2011, representing 4.7% of the existing global dry bulk fleet, Platts report added.

Source: Scrap Monster. 25 October 2011

http://www.scrapmonster.com/news/ship-breaking-intensifies-on-low-freight-rates-higher-scrap-prices/1/3538

Demolition of dry bulk ships hitting new records: Navios execs

Demolition of dry bulk ships has reached record levels in deadweight tonnage terms due to a combination of low freight rates, high fuel costs and high prices being offered by ship breakers to owners, executives with a major listed dry bulk shipowner said Monday.

As of October 14, 300 dry bulk carriers, aggregating 19.6 million dwt, had been sold for scrap so far this year, beating by 160% the previous record of 12.2 million dwt set in the whole of 1986, Frangou Angeliki, chairman and CEO of Navios Maritime Partners told analysts on a conference call to discuss the company's third-quarter results.

The number of dry bulk carriers sold for demolition so far this year represented 3.65% of the global dry bulk carrier fleet, she said.

Last year 5.8 million dwt of dry bulk tonnage was sold for scrap, representing just 1.3% of the global fleet.

George Achniotis, senior vice president of business development at Navios Maritime, said an average of 1.2% of the world fleet was committed for demolition each year in the period 2000-2010, inclusive.

Of the 300 dry bulk carriers sold for demolition this year, 64 were Capesize bulkers, but gave no comparison for prior years, he said.

At the current level of demolition, Achniotis said, the industry is set to commit 24.9 million dwt of dry bulk tonnage for demolition in the whole of 2011, representing 4.7% of the existing global dry bulk fleet.

The ongoing problem of delayed deliveries of new ships from ship builders was continuing this year, with around 31% slippage from the schedule so far in 2011 as of the end of September, he said.

Last year, the size of the global fleet swelled to 536.4 million dwt, up from 459.2 million dwt, Achniotis said. During 2011, the rate of slippage from scheduled deliveries from the yards amounted to 38%.

For 2011, while the amount of new ships entering the market was likely to exceed that for 2010, he said, "the rate of slippage and taking the volume of scrapping so far this year, the net fleet growth may not be as large as seen in 2010."

Around 11.4% of the global dry bulk fleet was over 20 years of age, of which 11.4% is more than 25 years, "which gives scrapping potential for another 106 million dwt," Achniotis said. HIGH INCENTIVE FOR SCRAPPING

Achniotis said the incentive for owners of such ships to scrap, because of low freight rates and the current price levels being offered to shipowners by demolition yards would yield an owner approximately $11 million-$12 million for a Capesize, which was the equivalent to around 30% of the secondhand value of a five-year-old Capesize bulk carrier.

Navios is a major carrier of iron ore, coal and grain, owning and operating 6 Capesize dry bulkers, nine Panamaxes and one Supramax. According to a slide presentation at the analysts' call, Navios Maritime lists Constellation Energy, Rio Tinto, ArcelorMittal and Vitol from the world of metals, mining and energy among its top 15 customers.

The shipowner derived 7.5% of its revenues in Q3 from Constellation Energy, 5.7% from Rio Tinto, 1.09% from ArcelorMittal and 1.3% from Vitol. Its biggest customer was STX Pan Ocean, one of the world's largest vessel owner/operators and carrier of iron ore and coal in its own right, and accounting for 13.2% of Navios Maritime's revenues.

Earlier Monday, the company reported a sharp increase in 3rd-quarter revenues, helped by the effects of operating a larger fleet, but flat income, caused largely by a lower fleet utilization rate.

In the 3 months to September 30, revenues rose to $48 million from $38 million in the corresponding 2010 period, but net income only grew to $16.6 million from $16.3 million a year earlier.

The company said the increase in revenue was largely attributable to operating a fleet with two additional ships in Q3 2011 compared with Q3 2010.

Navios reported fleet utilization in Q3 2011 of only 90.8% compared with 99.9% in Q3 2010. It did not specify what caused the lower utilization rate, other than attributing it to "unspecified off-hires." This cost the company $3.8 million in the quarter, it said.

Lower freight rates resulted in reduced time charter equivalent earnings of $28,992/day per ship in Q3 2011, down from $29,978/day per ship in Q3 2010.

In the first 9 months of the year, revenues rose sharply to $136.5 million from $100.7 million in the corresponding 2010 period. Net income rose to $46.7 million from $42.1 million.

Source: Platts. By Anthony Poole (anthony_poole@platts.com). 24 October 2011

http://www.platts.com/RSSFeedDetailedNews/RSSFeed/Metals/6610809

Dry bulk market projected to remain weak till 2013:

A senior executive of major ship brokerage Braemar Seascope said that the global dry bulk freight market is expected to stay weak throughout 2012 and into 2013 due to an oversupply of ships.

Mr Peter Malpas, Head of Research at Braemar, a unit of Braemar Shipping Services plc, expected the freight market to see signs of recovery in 2013, with the extent of an upturn depending notably on how supply is adjusted. He said that "Scrapping of ships is really key for the recovery."

The industry has been struggling with a supply glut that has outpaced demand for commodities such as coal and iron ore. Shipowners went on an ordering spree before the economic turmoil in 2008 and have been hit this year by the pace of ship deliveries, stepped up in recent months.

He said that the curbing of fleet capacity, whether through scrapping, delivery delays or order cancellations, would allow the market to recover faster in 2013 and benefit from industrial demand being driven by China. He added that "We see strong demand for shipping soaking up supply tonnage returning the market to healthier levels in 2014."

Mr Malpas said that scrapping had already increased significantly this year but an expected 30 million tonnes of scrapped capacity this year in the dry bulk sector would still be outstripped by forecast new capacity. He added that "It's what we scrap next year that will affect 2013."

Source: Steel Guru (Sourced from Exim News Service). 15 October 2011

http://www.steelguru.com/international_news/Dry_bulk_market_projected_to_remain_weak_till_2013/229826.html