Monday, 8 August 2011

Demolition Days

Shipbreaking activity picks up, but is it enough?

Much of the industry heaves a small sigh of relief as numbers show that shipbreaking activity has picked up this year. A report by Piraeus-based shipbroker Golden Destiny puts this increase at a huge 219% year on year. Many analysts feel, however, that gloomy freight rates will persist unless this trend accelerates; the issue of oversupply of tonnage will not disappear so easily, one says. Others point out that demolition numbers on deadweight scrapped this year are skewed by the fact that larger ships are being scrapped today compared to 2010.

Capesize tonnage seems to be under greater pressure, almost certainly because revenues have been hard hit over the last two years. Thirty eight percent of the scrapped vessels in 2011 have been bulk carriers. “Average time charter Capesize earnings are now hovering at $13,000/day in contrast with July 2009 levels when earnings were averaging $60,000/day," says Golden Destiny, adding that this year alone, "forty seven Capesize units are estimated to have been sent for scrap compared to only five units in a similar period in 2010 and nine units in 2009. The appetite for the scrapping of larger size units in the bulk carrier segment is expected to persist till the end of the year as the outlook in the Capesize segment remains negative due to oversupply issues and fluctuations in Chinese iron ore demand.”

Four hundred vessels- totalling 18.3 million deadweight tonnes- have been scrapped in the first half of 2011. Owners seem to be holding on to tankers and containers for the time being expecting either a reversal of freight fortunes or higher asset prices. However, both segments are under pressure, with some analysts saying that the container sector in particular will not recover to any decent degree for another two years.
India, Bangladesh, China and Pakistan continue to fight for greater market share in the shipbreaking business.

“In terms of scrap prices, there has been softness recently from the high levels paid in May with Bangladesh now offering more than India, $490/ldt for dry and $515/ldt for wet cargo. However, there are some worries about the trend in the coming weeks and it seems that both sellers and buyers are waiting for direction before committing to other deals," says Golden Destiny, adding, "During the year to date, India was won around 229 vessels, down by 18% from a similar period in 2010. Bangladesh is behind with only 49 units reported but there has been an enormous increase of 290% from the first quarter 2011 levels. China is trying to narrow the gap with the Indian subcontinent region but the levels offered are not very attractive, mid $400/ldt for dry and excess mid $400/ldt for wet units, but there are some strong offers for dry units with full spares."  

China has so far been unable to take advantage of the monsoon season to garner greater marketshare, the brokerage says, and Pakistani yards have been sluggish. "Pakistan has the smallest share of the scrapping business this year, only 7% comparing to 13% from China. The significant fall in the tanker scrapping business may be the reason behind Pakistan’s slowdown since it holds a competitive advantage in this segment and bulk carriers, liners and reefers have been the most popular scrap candidates for this year,” said Golden Destiny.

The brokerage house is predicting that shipbreaking activity will continue to be high for bulk carriers for the remainder of the year, with "substantial volumes" being recorded additionally for tankers and liners. In conclusion, it says, "Scrap prices will keep their pace, with India winning the largest share of demolition transactions".

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