The crumbling dry
bulk market witnessed a demolition spree in the first quarter, but returns for
shipowners are still barely able cover operational costs, market sources said
this week.
While increasing
the demolition rate is key to stemming the collapse in freight rates, dry bulk
market watchers say the torching of slightly younger vessels along with the
scrapping of older ships would have a greater impact.
The scrapping in Q1
was in the range of 12.5 million-14.5 million dwt after 145 to 180 vessels were
torched; this was up 42-57% year on year on volume and up 15-23% based on the
number of vessels, according to estimates Platts received from various market
participants tracking the demolition.
Notably, only six
vessels that were built in 2001 or later, which are considered to be relatively
younger vessels, have been scrapped so far including four Capesizes and two
Panamaxes, according to Eva Tzima, Intermodal Shipbrokers's head of research
and valuations.
"As a
charterer today, you can clearly cherry pick your vessel. So you're more likely
to go for the younger ship, but that's not a legal requirement," said a
research analyst with a shipbroking firm, adding that about 7% of the fleet is
currently over 20 years old and it was normal for older vessels to be scrapped
first.
Usually, the
demolition age is dictated by market sentiment and conditions.
Past trends have
indicated that the demolition age tends to get lowered when freight rates are
abysmally low, like in 2013 when the average scrapping age was close to 23
years. In 2014, when the market partly recovered, the average age was around 24.5
years, according to a Baltic and International Maritime Council, or Bimco,
report.
"Scrapping is
the most immediate way to reduce the number of ships in the water. However in
order for it to be meaningful, it needs to be a significant number of ships demolished.
Its important to keep in mind that in 2016 we are expecting approximately 54
million dwt [35% slippage included] to be delivered," said Konstantinos
Papazoglou at Bancosta Research. CAPESIZE, PANAMAX VESSELS GETTING THE AXE
Among the various dry
bulk segments, the Panamax and Capesizes vessels were the main candidates for
scrapping. More than 50 Panamax vessels adding up to about 4 million dwt and
close to 50 Capesizes totaling 8 million dwt were scrapped during the first
three months of 2016.
In the smaller
segments, demolition has yet to gather pace, with only around 55 Supramax and
Handysize vessels, totalling 2 million dwt, being scrapped over the same
period.
While scrapping
activity increased in Q1, expected deliveries of newbuild vessels during 2016
would still result in a net fleet growth, sources estimated.
"I expect the
rate of demolition in the bigger sizes, especially in the Capesize segment, to
continue at the same pace at least for the next and probably the third quarter
of the year as well. The firming in demo prices that we have been witnessing in
past months should also support this trend. In the geared sizes I expect the
rate to gradually slow as earnings have been recovering much faster,"
Tzima said.
"Scrapping is
a step in the right direction and coupled with minimal ordering should help,
but it needs to be sustained," said Papazoglou, adding the net fleet
growth for 2016 was seen at 3%, after accounting for a 35% fall in new
deliveries.
Tzima estimated
Capesize vessels will have a negative fleet growth of 2% by end 2016, while the
Handysize, Supramax and Panamax segments were estimated to grow 3.2-3.7% over
the same period.
--Shriram
Sivaramakrishnan, shriram.krishnan@platts.com
--Edited by Wendy
Wells, wendy.wells@platts.com
Source: platts. 8
April 2016
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