In absolute numbers, 2011 is going
to be the new Number 1 in terms of the greatest amount ever of dry bulk tonnage
leaving the fleet to be recycled. We are on course for more than 20 million DWT
to be demolished, with the potential of reaching 25 million if owners continue
to be attracted by the relatively high demolition rates and freight rates fail
to improve significantly through the remainder of the year.
Chief Shipping analyst at BIMCO, Peter
Sand, says: “The huge amount of tonnage leaving the fleet for recycling is very
positive news for the dry bulk market. As
2011 is going to provide the largest inflow of new ships ever, this
counterbalancing effort by ship owners is softening the current imbalance
between supply and demand as fleet growth will be tempered”.
The previous demolition record was
set in 1986 when 12.9 million DWT was demolished. At that time the dry bulk
fleet was comprised of just 197.2 million DWT, bringing the annual demolition
rate to 6.5%. Should 2011 bring around the same annual demolition rate
relatively, 35 million DWT would have to be recycled.
The primary driver behind this
development is the fact that earnings have been close to OPEX-levels for most
of the year. Combined with a strong inflow of new tonnage this has led to a
strong surge in demolitions of older tonnage.
Impacting Capesize fleet growth
The fleet growth rate in the
Capesize segment has so far been tempered by 4.4% due to demolition, with the
potential of reaching as much as 6.6% for the full year. This offsets the fleet
growth to a large extent, since the absence of any demolition activity during 2011
would have resulted in the Capesize fleet growing by astonishing 20%. Massive
as this figure may sound, the Capesize fleet grew by 23% last year and 18.5% in
2009.
If the full potential of demolition
of the Capesize fleet in 2011 should materialise, that would equal another 4.6
million DWT to be demolished. In order words it would require the 28 remaining
Capesize vessels that are built in 1985 or before to exit the fleet.
The demolition activity has
primarily involved Capesize vessels. 55% of the recycled DWT in 2011
represented Capesize vessels. This compares to the previous 10 years average at
just 27% of total dry bulk demolition. As the Capesize segment has already seen
inflow of new tonnage in excess of 27 million DWT (153 vessels), the decision
to take a vessel out of the commercial service is helping to cushion the impact
from significant oversupply which has already left deep scars in terms of very poor earnings. Average spot
earnings for a 10 years old Capesize vessel in 2011 have been just USD 8,296
per day. This is the poorest result on record. Last year such a vessel earned
USD 30,587 per day on average.
This means that, if you have so
far traded your Capesize vessel
exclusively in the spot market during 2011, earnings would have covered only
daily running costs, regardless of the composition of your Capesize fleet (new/old,
debt-free/indebted). This may be one of the most important factors behind the
booming demolition activity as massive inflow of new tonnage doesn’t encourage
higher demolition activity alone.
Daily running cost on a Capesize
vessel today is around USD 8,000 per day excluding capital costs and
depreciations. If you include the above-mentioned costs in the earnings
equation the picture looks quite different and it really spells out the
challenges facing owners. If your new built and externally financed Capesize is
bought at top dollar at the peak of the market (USD 95 million) using 80% debt
at 5% p.a. you will need just above USD 30,000 per day to break-even with the
vessel on a standalone basis. At the other end of the scale the same
calculation equals a break-even rate at USD 19,000 per day if you invest in a 5
year old second hand vessel today at USD 39 million.
A high price and a strong flow
Owners of V Europe have just sold
the vessel for USD 10 million to be demolished at a Bangladeshi facility. The
vessel that was beached on August 30 is amongst the latest in a very steady
stream of dry bulkers to be withdrawn from service. The 1982-built, 139,496 DWT
vessel is the 58th in the line of Capesize bulk carriers, underscoring the
strong flow of vessels satisfying a very solid demand for scrap metal in the
demolition country.
The healthy demand for scrap steel
is visible from the high ldt-prices offered. V Europe went to the breakers for
USD 525 per ldt (Light Displacement Tonnage), building further on the continual
rise in prices offered by cash buyers.
There are four major ship recycling
markets, namely India , Bangladesh , China
and Pakistan India Bangladesh
comes in second in terms of DWT - 7.4 million and China
The typical demolished Capesize
vessel is 27 years old on average with a cargo capacity of 160,125 DWT and
built in Japan
“At the current demolition pace, 4.7%
of the dry bulk fleet will be demolished during 2011. But as the order book still holds 235 million
DWT in prospect for future delivery equal to 40% of current active fleet, recycling
of over-aged tonnage must remain at high volume to bring optimism back and
steer this dry bulk segment towards more
sustainable freight levels – and thus better earnings", adds Peter Sand.
Source: Balkans (Sourced from BIMCO). 26 September
2011
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