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Dry Bulk Ships’ Demolition Rate at Lowest Level of the Past Five Years

While the dry bulk market has managed to recover over the past couple of months and net fleet growth remains moderate, ship owners will have to be wary ahead of a trade war, which means that more demolitions could be in order, in order to alleviate tonnage supply. In its latest weekly report, shipbroker Allied Shipbroking said that “demolition activity in the dry bulk sector had seen considerable increases since 2016, allowing us to even see a peak of as many as 60 units being recycled in a single month. The trimmed freight levels back then had created a strong push for owners to offload less competitive tonnage in order to curb their losses. This trend has started to slow down since 2017 having seen almost half the activity than what was being noted back in 2016 and 2015 with only 227 units being sold to the breakers. This was by no measure however the bottoming out of this trend, with demolition activity figures dropping to a fraction of even that number in 2018 with only 71 units be broker up”.

According to Allied’s Research Analyst, Mr. Yiannis Vamvakas “this year so far, we are witnessing an increase once more in the number of vessels being sold for demolition, though with exception 2018, these figures are still relatively low. The current ratio of scrapping to fleet is approximately 0.5% in the year so far, the lowest rate of the last 5 years. It seems that despite the continuous fleet growth, investors have becoming less worried about the supply side of the market. One of the reasons for this new normalization is that the fleet growth figure has decelerated considerably as of late. The growth rate in 2018 was a mere 1.88% (almost on par with the 1.80% noted in 2017), while in 2019 so far, the rate is still only 1.60%, with estimates showing that it will close off the year at levels relatively close to that of 2018”.

Mr. Vamvakas said that “the decreased appetite for new orders has resulted to only 208 new newbuilding contracts having been placed over the past two years. This has in turn led to a significant decrease in the number of newbuilding deliveries being seen, with the total number of deliveries for the two year period 2018-2019 estimated to reach 499 units, while the respective number for the period 2015-2016 was almost double at 983 units”.

He added that “another significant aspect that has played a key role in the slowdown in ship recycling activity since 2017 has been the rebound noted in the freight market. We may not have reached extremely impressive figures, but the growth that all Baltic indices have posted since 2017 has been critical. For example, the average BCI index in 2015 was 1,011bp, while in 2018 the index climbed to 2,096bp on average, a gain of around 107%. Similar growth has been posted across all the dry bulk size segments during these past couple of years. With this trend having been slightly reversed during the first couple of months of 2019 and earnings having slumped once again to record lows, it was only natural that we would see as a result an uptick in the demolition activity for Capesize sector, which was the sector that was hurt the most. In the year so far, we have already seen 16 Capesize vessels being sent to the breaker’s yards, more than the total scrapped in the whole 2018”, Allied’s analyst said.

“However, with fortunes in the freight market having been turned back to positive of late, it looks as though this ship recycling trend has now subsided. This of course has been in part also related to recent developments in the ship recycling industry along with the seasonal drop related to the monsoon period have also played their part. The declining interest to retire tonnage early is expected to continue over the next couple of months, given the overall optimism for a considerably revamped freight market. However, we should keep in mind that there are still a fair amount of deliveries scheduled to hit the water in the remaining months of 2019, a factor that could well turn the balance around for the early part of 2020 and once again push the ship recycling option to the forefront of conversations”, Vamvakas concluded.
Nikos Roussanoglou, Hellenic Shipping News Worldwide

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