Ships’ Demolition Prices Skyrocket on High Demand
If you’re a ship owner looking to offload one of his older vessels, then you’re in for a treat. Shipbrokers left and right are reporting of new highs on the prices offered by scrapyards and cash buyers, leading one of the leading ones, like GMS declare these deals “truly extraordinary and downright baffling”. With fewer owners looking to decommission their older bulk carriers, as a result of the freight market’s rebound, it seems that the demolition market has reacted.
In its latest weekly report, shipbroker Clarkson Platou Hellas noted that “we have begun 2018 with the same positive momentum that ended last year as it seems each new sale, especially the larger Dry LDT units, gain more value each time. A mind blowing USD 495/ldt has been seen this week for Capesize bulkcarrier which has certainly kick-started the year and awoken everyone from the festive holidays. The reason for the surge in prices is mainly down to the lack of tonnage currently being witnessed as the Dry and Container charter markets have continued to surge from there depressed state in the first quarter last year. Coupled with steel markets globally and fundamentals such as Iron Ore rallying again to record highs that were last seen in Spring 2017, the market looks set to remain in one of the healthiest places it has seen for recent years. This current trend always brings speculation to the tables from the cash buyers and the sale of the ‘Enterprise’ is certainly being treated in this manner. Whilst price levels have pushed on from 2017, this latest sale may prove to be sending the wrong signals to Owners as many in the industry have, so far anyway, been left baffled by such a price being offered as the domestic rates in the Indian subcontinent have themselves not jumped sufficiently to justify any large positive price correction. The question now is whether the start of the first full week of 2018, tempts more Owners to consider the recycling shores after seeing the surprise rates that have been offered”.
GMS added its own perpective on the matter by noting that “the opening week of 2018 brought with it, a healthy collection of fireworks and some truly extraordinary and downright baffling sales, as Cash Buyer speculation ramps even further into overdrive and another potentially bullish quarter lies ahead in wait. As dry bulk freight rates remain firm, the ongoing shortage of bulkers is expected to starve an overheated Pakistani market for tonnage. Consequently, one speculative Cash Buyer tabled an extraordinary price of USD 495/LT LDT for a Capesize bulker this week, in anticipation of a further firming of prices from Gadani. This is undoubtedly an extremely risky tactic to employ as the fixing price is about USD 50/LDT away from where Gadani levels currently stand for dry units. When markets are positive, speculative offerings in excess of USD 10 – 20/LDT are commonplace.
However, this price is definitely not reflective of current rates and could eventually come back to haunt the relevant Ship Owner and / or Cash Buyer, closer to physical delivery of the vessel. Although local steel plate prices have enjoyed decent gains over the Christmas and New Year period, how long this trend will last remains to be seen. After all, what goes up eventually comes down! Meanwhile, the attention of several Ship Owners has already perked as prices are now on the verge of breaching the USD 500/LDT mark – the first time anything close to this level has been seen since early 2015. As such, it could be that the number of viable candidates increases during the early part of 2018 (especially those nearing SS / DDs) in an attempt to capture some of these fantastic numbers on show. With Pakistan still closed for tankers, we would urge Owners of wet tonnage to curtail their expectations on rates as the only option for their units remains India or a far more muted Bangladesh, especially for large LDT wet units (Suezmax tankers and VLCCs). Overall, the year has started on a positive note and the prevailing optimism is expected to last at least until the Chinese New Year”.
Meanwhile, in a separate report, Allied Shipbroking added that “with scrap prices having remained firm during the Christmas holiday period, activity remained relatively firm with a fair amount of units being sent to the breakers yards. The Indian Sub-Continent has shown ability to be able to sustain the going price figures, while some are even placing belief on further increases in sight, given the improved fundamentals in terms of local steel plate prices and foreign exchange rates. The rest of the ship recycling markets seem to still be lagging behind in terms of offered price levels, widening the gap further, while leaving for little choice for most ship owners which can take the Indian Sub-Continent route. In terms of demo candidates, things are still relatively slow, with the dry bulk segment, which typically provides the biggest bulk of units now lacking due to the large improvement in freight rates. Conditions in the Tanker market have helped push an increased flow from this sector, however with minimal number of overage units available in the this sectors fleet, it is hard to see how this pace could continue on during the next couple of months”, it concluded.
Nikos Roussanoglou, Hellenic Shipping News Worldwide