The slowing pace of container ship scrapping since the beginning of the year is putting the recovery in charter rates at risk, according to Alphaliner.
Only 28,000 TEU were sold for demolition in May, down from a monthly average of 57,000 TEU in the previous four months as improved charter rates and lower scrap prices encouraged ship owners to hold back on recycling decisions, the industry analyst said.
Ninety-two vessels with a capacity of 280,260 TEU have been sold for scrap so far this year, but the slowing pace has prompted Alphaliner to trim its full-year forecast for vessel deletions to 600,000 TEU from 750,000 TEU at the beginning of the year.
However, “with the recent recovery in charter rates already reversing and with the peak season looming on the horizon, ship-breaking could pick up again, especially if scrap purchase prices rise.”
Scrapping will be further boosted in the second half of the year when the International Maritime Organization’s Ballast Water Management convention comes into force in early September.
The convention will constrain ship owners from retrofitting expensive ballast water treatment equipment on vessels that have reached the deadline of the International Oil Pollution Prevention Certificate.
These costly refits could trigger the disposal of numerous middle-aged, classic, 4,000- to 5,100-TEU Panamax ships, especially those that are in lay-up.
The removal of obsolete Panamaxes that has driven the bulk of scrapping over the past year has almost ground to a halt, according to Alphaliner.
“One of the reasons is that opportunistic buyers swooped on Panamaxes, sold at bargain prices, in the hope they can derive profits in the near term, or at least sell them at higher scrap prices.”
Charter rates for classic Panamaxes soared to $10,000 a day in April from $4,000 at the beginning of the year, but have since softened to around $8,500 and are expected to keep falling in the absence of demand.
The steep slide in the number of idled Panamaxes since 2016 is largely the result of a surge in scrapping that has seen 58 vessels demolished since last July, reducing the jobless figure to 37 ships today from 95 in November.
“A sustained recovery in Panamax charter rates can only be achieved when the overhang in vessel supply is cleared. Without a recovery in demand this can only be attained by the continued scrapping of surplus ships,” Alphaliner said.
“The halt in ship breaking activity thus puts the nascent charter rate recovery at risk, especially for classic Panamax vessels.”
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Source: JOC
