Demolition
Prices for elderly ships have fallen by a quarter in 2012 to date, and owners
are encouraged to dispose of recycling candidates sooner rather than later,
says Mark Williams of Braemar Seascope.
Addressing
the 7th Annual Ship Recycling Conference in London on 19th June, the Braemar
Seascope Research Director told delegates that deflating international steel
prices were likely to translate into lower offers for recycling tonnage in the
coming quarters.
Meanwhile,
rapid reductions in the value of the Indian, Pakistani and Bangladeshi
currencies against the US dollar are causing difficulties for cash buyers and
end users struggling to pass on cost increases to their own customers, despite
long-term strong recycled steel demand growth prospects in the sub-Continent.
Forex
risk for recyclers has been compounded by intermittent limited availability of
credit. Buyers’ banks have been challenged by “sight LC’s” – letters of credit
that must be honoured on sight, which can be hampered by a shortage of hard
currency.
Meanwhile
cash buyers paying hard currency for recycling candidates are bearing the forex
and credit risk of selling in local currency to the recycling facilities.
Falling
demolition price assessments, as published by the Baltic Exchange, are likely to
influence second hand vessel prices, says Williams: “For example, it could be
argued that over-age oil tankers are now priced off scrap, which will lead to
increased numbers of younger ships being sucked into the recycling markets.”
Williams
also presented the hypothesis that spikes in scrapping are driven not only by
low freight rates, or high scrapping prices, but by credit crunches. “Credit
crunches coincided with peaks in recycling in 1986 (the year the Biffex
bottomed out at 550 points and banks had stopped supporting technically
bankrupt owners following the savings and loan crisis), 1998 (the Asian
financial crisis which led to an Asia‐wide credit crunch and high scrapping despite
relatively low values per LDT) and 2008/09 (the global financial crisis)”.
Source: BYM News. 24 June 2012
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