Tanker Scrapping ‘On the Rise’ Amid Dampening Oil Demand



  • The fall in crude oil demand has hit the tanker market hard.
  • The oil price dip led to the surge in Chinese imports and resulted in congestion in Chinese discharge ports.
  • Ship brokers report this is likely to lead to an increase in scrapping.
  • Another trend in the ship scrapping/recycling market, the increasing size of the ships being sold for scrap, was also noted.

Falling crude oil demand puts older tankers at risk, writes Craig Jallal for Riviera Maritime Media.

Dip in global oil demand

The US Energy Information Administration may have modified its estimate of the fall in global oil demand in 2020 by 8.3M b/d to 8.1M b/d, but it is still a significant drop in demand that could hurt the tanker market, and reverses six years of demand growth.

Having said that, the tanker sector has enjoyed a remarkable run of demand growth as a result of COVID-19, oil producers such as Saudi Arabia opening up production and traders scrambling to book tankers for storage.

The firm market is unwinding as the OPEC production cuts take hold. According to the latest BIMCO tanker outlook, “In the long run, lower aviation and transport demand, and fundamentally lower oil consumption, will hurt the industry for at least 15 months.”

BIMCO notes that VLCC earnings at the end of August 2020 averaged around US$17,000/day, indicating a loss of around US$7,000/day on breakeven rates. One year timecharter rates have retreated from US$80,000/day at the peak in early 2020 to US$36,000/day.

Surge in Chinese imports

Conversely, as China emerged from lockdown, it experienced a surge in imports, reaching and surpassing 50M tonnes per month in June and July.

BIMCO notes that the falling oil price led to the surge in Chinese imports and resulted in congestion in Chinese discharge ports. This was a major factor in dampening supply and maintaining freight rates.

One result has been the decline in tanker demolition.

  • Shipbrokers Simpson, Spence, Young (SSY), which holds tanker fleet data going back to the 1980s, noted that removals from the tanker fleet are at the lowest levels since the first half of 1990.
  • Excluding chemical carriers and tankers less than 10,000 dwt, just 14 vessels totalling 1.11M dwt capacity have been removed since the start of 2020.

SSY noted that based on historical trends of downturn in tanker demand and weak earnings, tanker scrapping could pick up once the current high level of storage unwinds.

Following the last major downturn in the freight market in 2017-2018 (when average annual MEG-China VLCC earnings fell to around US$16,000-US$17,000/day from US$35,500/day in 2016) the average scrapping age in 2018 dipped to 19.1 years,” SSY noted in its September Monthly Shipping Review.

In 2020, 26 VLCCs will reach 20 years of age and a further 18 in 2020. These, SSY suggests, are prime candidates for scrapping.

Ship scrapping on the rise

Clarksons Research Services (CRS) has noticed another trend in the ship scrapping or recycling market – the increasing size of the ships being sold for scrap. This applies less to the tanker sector, where a VLCC sizes have not altered very much since the 1980s, but in the less mature sectors.

  • CRS points to the sale for scrapping of a 9,600-TEU container ship in 2020, over 45% larger than any other container ship previously sold for scrapping.
  • Looking at the fleet as a whole, CRS noted that in the 1990s, the average size of vessels sold for scrapping was around 20,000 dwt.
  • In the last five years, the average has been closer to 40,000 dwt, showing how the much larger vessels have grown over the intervening period.

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Source: Riviera Maritime Media


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