Home / Shipping News / Interviews / Scrapping of older vessels to intensify in coming months, says Braemar Seascope

Scrapping of older vessels to intensify in coming months, says Braemar Seascope

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.Β 
Tanker – 8.25m dwt sold for demo in 2011,Β  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.Β  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.Β  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.Β  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.Β  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,Β  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.

Nikos Roussanoglou, Hellenic Shipping News Worldwide

Recent Videos

Hellenic Shipping News Worldwide Online Daily Newspaper on Hellenic and International Shipping