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Demolition activity maintains pace as owners seek to easy oversupply issues

Saturday, 18 February 2012 | 00:00
It’s no secret that 2011 proved to be yet another record year in terms of newbuilding deliveries, especially for the dry bulk sector, which saw a part of these orders spilled over in January, causing the BDI (Baltic Dry Index) to plunge to record lows, not seen since the mid-80s. Not even the collapse of the global financial system in the autumn of 2008 managed to deal such a blow in the market.Still, as shipbrokers are reporting, demolition activity both in 2011 and at the early stages of 2012, has been in rather healthy levels, which could ease up part of the oversupply issues currently at place. In its latest weekly report, Clarkson Hellas mentioned that “as we anticipated last week, the ‘peak’ has indeed been reached as the sheer volume of tonnage working its way into the market has completely changed breakers sentiment and mood. The market has become saturated with tonnage and with the appetite seemingly complete on the waterfront in Alang, the Indian breakers can now afford to be choosy over which tonnage they bid for, creating a big problem for Owners with new tonnage to sell, and cash intermediaries alike who hold tonnage in hand from previous acquisitions.
Market rates this week from the Indian sub-Continent breakers fell by some USD 15-20 per ldt resulting in many Owners with tonnage under negotiation to chase the market down to a level that cash buyers were comfortable to purchase at. This, as previously experienced, makes the market a precarious one, and the preference of many cash buyers is to temporise until they dispose of the large quantity of units already in hand, unless of course, owners are willing to consider the new revised price levels.
Confidence in the Bangladeshi market remains unsure still and for the time being, we cannot expect any major purchasing activity from these breakers to compete with their counterparts from India. Some units there are now being beached, although local clearances are taking more time than usual, but, not surprisingly, cash buyers appear to refrain from committing new tonnage to the area until they have released their own tonnage that they have had standing at the anchorage for some time. An additional, and major, issue is local financing which is not helping the market to bounce back. It is reported that there are still only a handful of breakers who have the capacity to open up Letters of Credit, and therefore competition locally for available tonnage is limited” it said.
The shipbroker went on to say that “the Pakistan market, we understand, is also filling up. Their interest remains in the larger tanker units however here to, rates have reduced by some USD 10-15 per ldt over the last few days. Chinese breakers, who have also been flooded with tonnage (particularly domestic controlled units), have subsequently corrected their own rates downwards” concluded Clarkson Hellas.
In a separate report, Piraeus-based shipbroker Golden Destiny said that “in the demolition market, the Bangladesh ship recycling industry seems to narrow its gap with its rivals, India and Pakistan, but the import tax issue remains a problem for Chittagong scrap buyers in winning stronger business. India remains in the first rankings by offering the highest level of rates, with some units fetching this week very good levels due to sufficient amount of bunkers. Pakistan is still not so active player even the competitive price levels offered compared with India, while China has returned in the game after the Chinese New Year festivities with softer rates.
The week ended with 22 vessels reported to have been headed to the scrap yards of total deadweight 764,174 tons. In terms of the reported number of transactions, the demolition activity has been marked with a 5% week-on-week increase, with doubled demolition activity in the bulk carrier segment from previous week, whereas there has been a 31% decline regarding the total deadweight sent for scrap due to 86% lower tanker scrapping business. In terms of scrap rates, the highest scrap rate has been achieved this week in the reefer by India for two units built 1993/1994 with lightweight of 5,288tons at $575/ldt. Bulk carriers have grasped the lion share of this week’s total demotion activity, 55%, with India winning 50% of the activity. At a similar week in 2011, demolition activity was down by 36% from the current levels, in terms of the reported number of transactions, 14 vessels had been reported for scrap of total deadweight 451,744 tons with bulk carriers grasping 43% of the total number of vessels sent for disposal. China and Pakistan had been offering $450/ldt for dry and $485-$495/ldt for wet cargo, while Bangladesh market had been inactive from the demolition scene” concluded Golden Destiny in its report.
Nikos Roussanoglou, Hellenic Shipping News Worldwide
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