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Dry Bulk Market: Demolition Activity Still Crucial for Long Term Recovery

The sustainability of the dry bulk market’s rebound is still very much reliant on the steady rhythm of dry bulk demolitions. In its latest weekly report, Allied Shipbroking said that “despite the fact that we look to be well past the days of excessive supply glut in the dry bulk market, the demolition market is still one to be closely followed by most. After all it is a market that plays a crucial role in the overall supply/demand balance. So what can we really expect to see in this market this year? In 2017, the dry bulk sector had a limited presence in the ship recycling market, closing with the lowest annual figure in terms of number of vessels that we have seen since 2011. This came attuned with the general improvement dry bulker freight market, especially from the latter half of the summer period onwards, underlining the high correlation that these two markets share”.

According to Mr. Thomas Chasapis Research Analyst with Allied Shipbroking, “the boost in positive sentiment and the increasingly bullish attitude towards the forward prospects of the market have incentivized many ship-owners to prolong their assets’ trading age by a considerable amount. It is worth pointing out that the slower ship recycling activity noted last year could also be attributed in part to the amassed activity of previous years, reducing substantially the number of vessels that are above 20 years of age. At the same time, on the tanker side, a steep increase in the number of ships sent to be beached would have been expected given the poor performance noted in their freight market, yet given the fleet cleansing that had taken place in past years, the tanker market was left with a minimal number of vessels in the “overage” group. Subsequently, this left the total figure of vessels recycled last year to reach its lowest level in over 5 years”.

Chasapis added that “moving against this, offered prices from the Cash Buyers have noted an upward trend in general throughout 2017, reaching fairly close to the prices that were being noted before the market collapse back in the summer of 2015. In the Indian Sub-Continent, there was an increase of around of 100 US$/ldt on the average prices quoted, an impressive recovery from the 5-year low figures noted back in 2016. In the other main ship breaking regions, namely China and Turkey, there was also a considerable improvement in their offered prices, but not to the same extent as those noted in the Indian Sub-Continent, further increasing as such the price gap. Moreover, this gap has widened further in 2018, with the Indian Sub-Continent maintaining its prices well above the 400 US$/ldt mark, while the other regions are well below the 300 US$/ldt mark”.

According to Allied’s analyst, “it is true, that in the case of China, this has been in part due to the shifting political environment with regards to pollution, which has pushed the industry there to focus more on green recycling options which are fully or in part compliant to the Hong Kong convention. In the case of Turkey, it has been more to do with the periodical pressure that has been felt in local steel plate prices and a weakening currency. So what can we expect from the market this year? All-in-all, the bargaining power seems to have moved to the ship owners favor, with the slack in the number of demo candidates pushing for intense competition amongst cash buyers. There is however the risk as always, that a small shift in the dynamics of the market, can turn everything on its head. A rapid change in regulations, a wild shift in earnings, a change in the seaborne trade trends, all can lead to a very different market to the one we are facing now. Given however all that we have seen, and the overall trends being noted in the market, it looks as though there is considerably more potential for upside than for downside movements in the market”, Chasapis concluded.
Nikos Roussanoglou, Hellenic Shipping News Worldwide

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