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
