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Older Tonnage Could Be Headed for Scrapping, Ahead of the IMO 2020 Rule

The upcoming IMO 2020 rule on the use of lower sulphur fuel oil could send more older tonnage for scrapping, as evidenced by last week’s surge in enquiries after months of lackluster performance. Still, market reports are contradicting each other, with some still reporting underwhelming numbers of demo candidates.

In its latest weekly report, GMS, the world’s largest cash buyer of ships noted that “after several weeks of all pervading negativity off of the back of slumping Bangladeshi steel plate prices, the rollercoaster nature of the international ship recycling markets was on full display this week, as prices and sentiments once again started to step towards being positive. Indeed, so troubled was the market in Chittagong that the BSBA (Bangladesh Shipbreakers Association) tried to form a cartel and impose a price ceiling of USD 350/LT LDT on any available units. This, expectedly, shifted the focus of Ship Owners and Cash Buyers towards the Indian (and to an extent Pakistani) market, where there was at least a modicum of stability as all else was failing, despite some mid-week Rupee wobbles. On the far-side, Turkey still continues on, albeit leaving Turkish Recyclers in a tricky position, as plate prices stay steady near the USD 270/MT market, with no meaningful tonnage to bid on”.

GMS added that “it now appears that there could be an increase in potential tonnage for sale from Owners, as the end of the year looms and the new Sulphur regulations come into effect from January 2020. However, rather than drip feeding tonnage into a relatively barren market over the course of the year, the fear is that a potential deluge of older vessels (particularly with surveys due) may now start to hit the market, putting downward pressure on prices once again. Freight rates (particularly on tankers) remain impressive, whilst containers and dry bulk sectors have now started to display the first signs of cooling off, perhaps ahead of a lower end to the year, leading into the first quarter of 2020”, the report concluded.

Meanwhile, in its latest weekly report, shipbroker Clarkson Platou Hellas said that “we end the week once again on a familiar feeling of an underwhelming period, but there was some savour from the handful of sales that did manage to go through and provide some market commentary. The various offers witnessed from Cash Buyers this week showed us how different everyone’s outlook for the market currently is, as some speculated upon a rise in Pakistan, while others are cautiously watching from the side-lines and waiting to see how this current depressed market plays out until the end of the year. This continued mixed feeling emanating from Pakistan arose once again as it secured some smaller units for the first time in months and making further enquiry on other units. However we will need to see a solid glut of tonnage arrive at the Gadani shores for the local market to be fully tested and re-emerge as a viable recycling destination once again. India tried to pick its self-up off the floor following last week’s unwelcome news regarding a slowdown in the economy reported by the respected financiers Moody. With also the Indian rupee falling 1% against the US dollar over the past 10 days, resulting in sentiment remaining almost nonexistent in the country. It is now felt that the market may not have fully bottomed (a concerning thought). But with the continued strong freight markets across varied sectors looking set to continue for the foreseeable future, it may mean that end Buyers will need to be bold and aggressive in their approach in order not to be left stranded from the limited units slipping into the market at present. There were some encouraging signs from Turkey however as prices made small incremental gains week on week and appetite in the region remaining strong for tonnage. There was also welcoming news that a further 3 recycling facilities will be added to the EU approved list for recycling in the New Year, providing European trading Owners more viable options when they decide to sell their vintage vessels”.

In a separate note, Allied Shipbroking said that “the ship recycling market resumed on a sluggish pace for yet another week, with very few units being sent to the breakers yards. However, some positive signs are starting to emerge, stretching hopes that an uptick in the market is now in sight. The most positive news came from Bangladesh this past week, as it seems that scrapyards are not keen on following BSBA’s attempts to shape a pricing cartel. As a result, interest from owners of vintage units has started to revive and slots have begun to fill up once again. The recent slump of steel plate prices played a key role in this decision from the domestic recyclers. However, with limited available slots in the domestic scrapyards and with the improvement in offered prices being fragile, things could turn negative once again. Given problems faced in Bangladesh these past few weeks, India has been able to attract some tonnage so far due to the gradually improving fundamentals in the local market. The significant drop though noted last week in the Indian Rupee and the comeback of the Bangladeshi market may drag down interest over the coming days. In Pakistan, things only got worse, with some of the local breakers starting to shut down due to lack of activity. Adding to this, there is little sign of a potential rebound in the market, making for any even more gloomy outlook for this specific market”, Allied concluded.
Nikos Roussanoglou, Hellenic Shipping News Worldwide

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