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500 days since last VLCC demolition sale

On Monday 2 November – it will be 500 days since the last VLCC left active service when it went on its final journey from Jeddah to Bangladesh for dismantling. Strong crude oil tanker market earnings from August 2019 through July 2020 have evaporated any interest in demolition sales.

By end-October 2020, spot freight rates for all oil tankers sit at a loss-making level for owners and operators.

The 500 days is the second-longest streak without any demolition sales of VLCC crude oil tankers since 2009. Sold at USD 440 per ldt, the Japanese built “Watban” contained a lot of steel and brought USD 20.8 million to its owners.

“Shipowners are die-hard optimistic people. This explains why the tanker market can stay low for a long time before anyone decides to call it a day and sell their ship for scrapping,” says Peter Sand, BIMCO’s Chief Shipping Analyst.

Today, candidates for demolition sale contain less steel than “Watban” and the steel price in Bangladesh is USD 360 per ltd., bringing in around USD 15 million for an average VLCC.

It took an oil price nosedive in the second half of 2014 to fuel solid oil tanker market earnings. In 2019 and 2020, geopolitics and the COVID-19 pandemic have driven of earnings higher. In both cases, higher earnings capped the incentive to demolish.

“Any dead cat bounce during the coming winter season is likely to postpone a large scale cut in the active fleet. Since the last demolition sale, 57 newbuilds have been delivered, contributing to a fleet growth of 52% since the start of 2011,” Sand says.
Source: BIMCO, Peter Sand, BIMCO’s Chief Shipping Analyst

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