- The bulk carrier market faces weak demand and excess fleet growth in 2025.
- The average vessel age has reached a high of 12.5 years, increasing potential for scrapping.
- Secondhand vessel prices are expected to decline, narrowing the premium over scrap value.
- Scrap prices are under pressure due to low steel margins, Chinese imports, and weak demand.
- Increased vessel scrapping could lower offered scrap prices further.
With the projected increase in bulk carrier deliveries for 2025 and the current downturn in the freight market, ship demolition may offer relief to the industry. The dry bulk sector faces weak demand, with fleet expansion outpacing tonnage demand growth. If demolition activity rises, it could help balance supply and demand. However, the drivers behind this shift remain uncertain, according to Breakwave Advisors.
Aging Fleet and Scrapping Trends
The recent strength of the freight market has led to an increase in the average age of bulk carriers, now at 12.5 years—the highest since 2011. Handysize bulkers lead with an average age of 13.49 years, followed by Supramax (12.27 years), Panamax (12.18 years), and Capesize (11.30 years). About 9% of the total bulk carrier fleet is over 20 years old, with the Handysize, Panamax, and Supramax segments accounting for the largest share. Historically, shipowners have opted for scrapping in response to poor freight markets, as seen in 2016 when the average demolition age dropped to 23.4 years. With current economic pressures and stricter environmental regulations, demolition could once again become a viable strategy.
Vessel Pricing and Market Sentiment
In 2016, the scrap value of older bulk carriers exceeded market prices in some cases, prompting owners to sell vessels for demolition. Today, a 20-year-old Supramax vessel still holds a price premium of $3.8 million over its scrap value, but this gap is expected to narrow. A decline in secondhand vessel prices is anticipated in 2025, bringing valuations more in line with prevailing freight rates. Alternatively, scrapyards could offer higher prices for vessels, but current sentiment suggests limited optimism for such an increase.
Scrapyard Capacity and Price Trends
Bangladeshi scrapyards are currently offering scrap prices in the mid-$400/ldt range, with further declines expected. Several factors are driving this trend, including weak steel margins, competition from cheap Chinese steel, political uncertainty, and subdued domestic demand. A potential surge in demolition candidates may strain scrapyard capacity, leading to downward pressure on scrap prices. Additionally, other shipping segments, such as container vessels, may also turn to scrapping, further increasing supply. As a result, the bulk carrier sector is likely to see a rise in vessels offered for recycling, but whether scrapyards can absorb the influx remains a key concern.
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Source: Breakwave Advisors
