The ship breaking industry is set to end 2016 on a positive note, having experienced a record high volume of box ship scrapping.
Mainly due to the recovering steel price, demolition rates across the main regions have improved significantly from the multi-year lows seen in February.
Moreover, recyclers in India, one of the world’s largest shipbreaking nations, seem to have adjusted to Prime Minister Narendra Modi’s demonetization policy and have resumed normal operation despite their known reliance on the cash economy.
According to the Baltic Exchange, the scrapping rate for dirty tankers in the Indian subcontinent was at $314 per ldt on December 19, up 30.3% from the end-February level; for clean tankers the rate was $306.4 per ldt, up 27.1%; for bulkers it was $302 per ldt, up 33%.
Scrapping rates in these sectors in China have improved, even more, nearly doubled from the February lows.
As for container ships, Clarksons data showed the rate in India was assessed at $325 per ldt on December 23, up from $260 in February, using a 2,000 teu ship as the basis for calculations.
Rising rates are likely to provide owners with more incentives to send their ships to breakers in the coming months, with freight earnings in most sectors expected to be plagued by overcapacity.
Boxships
With container shipping markets in the doldrums, a record amount of box ship capacity in teu terms was sent to scrap yards this year.
Clarksons has said it expected 700,000 teu to be recycled for the whole of 2016, having recorded 173 ships with nearly 600,000 teu during January-November.
Moreover, the age of recycled vessels is falling. When only fully cellular vessels are taken into consideration, the scrapped fleet’s average age for 2016 is 18 years as of December, compared with 24 years in 2015.
The classic Panamax segment has seen more scrapping than other sizes of container ships due to limited employment opportunities.
In December, Rickmers Trust Management (B1ZU) decided to recycle the 2009-built, 4,250 teu India Rickmers as part of its debt settlement with Commerzbank, setting a new record for the youngest box ship sent for demolition.
“The scrapping of such young ships is a consequence of the disastrous state of the charter market for classic Panamax tonnage,” Alphaliner noted.
The consultancy estimates a total of 55 classic Panamax vessels have been scrapped so far this year as of December, saying demand for this type of ship has collapsed due to changing trading patterns.
In particular, with larger vessels deployed on trans-Panama routes after the Panama Canal expansion, these ships have been increasingly squeezed out of their traditional routes.
Dry bulk
Scrapping volumes of bulkers fell below expectation this year, despite high demolition levels in the first quarter when the Baltic Dry Index hit all-time lows.
According to Clarksons, 28.8m dwt of bulk carriers have been recycled this year so far. On an annualized basis, this year’s demolished volume will be 4% lower than the 2015 level of 30.5m dwt.
While more Panamax and handymax vessels were sent to scrap yards this year, less capesize and handysize tonnage were recycled, data from Clarksons showed.
“The one disappointment for dry bulk owners may be that the momentum generated in the early part of the year did not persist,” cash buyer GMS said in a note.
“The resurgence of charter rates has seen many units plough their trade for extended periods and some scrap eligible candidates were even passed through the dry dock.”
One trend that does seem irreversible, though, is that recycled ships are getting even younger with tightening regulatory requirements.
Lloyd’s List Intelligence data showed this year’s average age of scrapped fleet is 24, compared to 26 in 2015, 30 in 2014, 31 in 2013 and 32 in 2012.
Tankers
Tanker recycling has been very limited over the past two years, as vessel earnings were mostly above breakeven levels.
According to LLI, six crude carriers totaling 816,592 dwt and 15 product carriers with 592,816 dwt have been scrapped so far this year, versus seven crude tankers with 769,185 dwt and 35 product tankers totaling 959,914 dwt for the whole of last year.
Clarksons recorded 2.6m dwt of tankers sold in recycling deals this year, and on an annualized basis the 2016 volume will be 10% higher year on year. The amounts seen in 2015 and 2016 are still much lower than 7.8m dwt in 2014 and 11m dwt in 2013, however.
With tanker earnings on a downward trend and more regulatory requirements kicking in, there could be a higher scrapped volume in 2017.
“In addition to freight market uncertainties, the enforcement of the ratified ballast water treatment legislation and the [International Maritime Organization] global sulphur cap at 0.5% in 2020 will be a stimulus for the demolition of inefficient ships,” BIMCO chief analyst Peter Sand said.
According to BIMCO, 15% of the current very large crude carrier fleet, 21% of the Suezmax fleet and 22% of the Aframax fleet are more than 15 years old – those vessels are the most likely candidates for scrapping deals.
Citing low earnings and the ballast water treatment rules, which will take effect from next September, as reasons, Maritime Strategies International also expects that “tanker scrapping will move sharply higher in 2017.”
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Source: Seeking Alpha
