Scrapping of older vessels the key to shipping's recovery
Friday, 20 January 2012 | 00:00
The newbuilding orderbook for most ship types across the board continues to reach staggering heights, therefore exerting downward pressure on freight rates and squeezing shipowners' profits. The solution, at least one of the most effective ways, to deal with this pattern is demolition activity. According to shipbroker Intermodal, "the orderbook for bulk carriers (bigger than 20,000dwt) still stands at just below 2400 bulk carriers, therefore we expect 2012 to be another difficult year. We expect the panamax/kamsarmax size to be squeezed the most since the larger percentage of the orderbook will be delivered this year. Considering also the age profile of the fleet, we expect handysize vessels to be more stable and perform a little better than the others. In the wet sector, the orderbook profile is much better. However, given the poor performance in 2011, it seems that we are still experiencing the digestion of the previously swollen orderbook" said Intermodal's Theodore Ntalakos.
"He went on to mention that despite the extended demolition levels for the past 2 years and the substantial drop in second hand prices for vessels built before 2000, it seems that the fleet is still more than enough to cover the existing demand. The small tankers, up to 25,000dwt which is not shown in the table above but account for about half of the entire tanker fleet, is the only size where both the trading fleet and the orderbook have both shrank during the past year. The trading fleet has decreased by about 200 vessels and the orderbook by about 100. Encouraging news for small tanker owners. Finally, the box sector. While the profile for the small sizes seems to be in a good shape, it's probably the bigger containerships that drive the overall demand and we cannot predict the impact of the ultra large and super post panamax container vessels, where the most orders are. The sector is dependent on the demand for finished goods which was not great in 2011 and any increase in demand was suffocated by the oversupply. However, we believe this sector may have room for development since the trade routes and patterns seem to be quite dynamic" concluded Ntalakos.
Meanwhile, in the demolition markets this week, Clarkson Hellas noted that there waas another obstacle for the market to overcome in relation to Bangladesh. "No sooner than the market heard the long awaited news Bangladesh was officially open once again, then further reports followed to say that no buying will take place until a local issue had been resolved. The Bangladeshi government recently imposed a 5% income tax on ships being imported for scrap, a decision not favourable to the local ship breaking community and therefore all the ship breakers locally decided to boycott purchasing any new tonnage until this new tax was either completely abolished or significantly reduced. It is unknown when any mutual agreement will be decided which only causes further anxiety amongst the recycling market knowing that the return of the Bangladesh market is vital to the industry. In addition, and another major issue at present, is the fact that there is a lack of U.S. Dollars internally that is needed to support the industry, and this will have a major impact of establishment on Letters of Credit opened by the local banks on behalf of the shipbreakers. It is reported that a couple of Chinese owned bulk carriers had been committed for delivery Bangladesh at the beginning of last week, however these sales subsequently failed to materialise.
Indian has again forced itself into the number one position as price levels improved this week. The reason for this week’s increase is down to the Rupee strengthening against the U.S. Dollar (the best rate seen for some time), the domestic steel market having seen positive improvements and to an extent, the expectation that Bangladesh was returning to the fore. However as reported above, should the situation not improve in Bangladesh in the coming weeks, then the sudden increase in rates seen from the Indian market could potentially tail off again to numbers that are more profitable to the local industry.
Elsewhere, Pakistan remains eager for the larger tanker units, however, surprisingly given the current freight conditions, few units are being circulated in the market. But with the more favoured gas free conditions (men entry only compared to hot works for India and Bangladesh), the general consensus is that such units will currently find Pakistan as their final destination.
China continues to provide a competitive streak for tonnage completing in the Far East area, however the fast approaching New Year festivities may, next week, ensure a quieter period envelopes the local scene. Currently however, prices levels remain anything from region USD 420-450 depending on the vessels specification" concluded Clarkson Hellas.
In a separate report on demolition activity, Golden Destiny noted that "some activity has been witnessed in the Bangladesh region on the news that the green light will be given to the ship recycling industry on January 12th. Scrap prices for dry and wet units remain below $500/ldt with hopes for a firmer rebound on the full reopening of Bangladesh. Pakistan appears to be the most competitive with levels offered $455/ldt for dry and $485/ldt for wet cargo, while China seems to compete with the Indian sub continent region at scrap rates of about $430-$440/ldt.
The week ended with 22 vessels reported to have been headed to the scrap yards of total deadweight 788,248 tons. In terms of the reported number of transactions, the demolition activity has been marked with a remarkable 83% week-on-week increase, due to 233% higher volume of demolition transactions in the bulk carrier segment, whereas there has been a 106% increase regarding the total deadweight sent for scrap. In terms of scrap rates, the highest scrap rate has been achieved this week in the dry bulk segment by Bangladesh for M/V “KANG HUA” with 9,239/ldt at $493/ldt including 500 tons of bunkers. India has attracted 36% of the total demolition activity with China winning 2 bulk carriers at levels xs $400 /ldt. At a similar week in 2011, demolition activity was down by 64% from the current levels, in terms of the reported number of transactions, 8 vessels had been reported for scrap of total deadweight 310,651 tons with bulk carriers and tankers grasping 50% of the total number of vessels sent for disposal. India and Pakistan had been offering $465-$485/ldt for dry and $500-$510/ldt for wet cargo, while Bangladesh market had been inactive from the demolition scene" concluded Golden Destiny.
Nikos Roussanoglou, Hellenic Shipping News Worldwide