Thursday, 9 August 2012

28 million DWT scrapped, and counting.

The over tonnaged shipping industry must be relieved at the increase in ship breaking activity this year; statistics show that a massive 28.3 million DWT has been scrapped in the first six months alone, a figure greater than the tonnage demolished in the entire year 2010. Additional research by London based Clarksons shipbrokers says that last year saw up to 40.4 million DWT being sent to demolition yards by owners stung by the punishing market. 

The spike in ship breaking is despite the recent uncertainty in India, with the 'Oriental Nicety' (the infamous ex Exxon Valdez) only being cleared to be beached by the Supreme Court recently. The litigation before the apex court had caused much anxiety that the Indian demolition market may be effectively shut down over environmental concerns, as had happened for a while in neighbouring Bangladesh. Some analysts expect activity to pick up after more clarity emerges on the court's stance on hazardous materials on ships being brought to India. Unfortunately for shipping, the court ruling has not seen any improvement in prices in India; rather, they have marginally declined since then.

Shipbrokers Golden Destiny had reported before the Supreme Court ruling, "The potential closure of Indian ship recycling industry and the drop in steel prices keeps the scrap price momentum at low levels with some signs of recovery, while currency in India is again losing ground against dollar. Offered prices are now around at $370-$380/ldt for dry/general and $400/ldt wet cargo in the Indian subcontinent region, while China offers levels below $350/ldt for dry/general and about $350/ldt for wet cargo. India keeps winning some demo sales for its scrap yards given the uncertainty of the pending Supreme Court ruling in the coming days for banning vessels entering Alang unless any hazardous or toxic wastes had been removed". 

Chinese breakers are showing decreasing interest in bidding for ships, experts say, pointing out that the fall in steel prices amidst a slowing Chinese economy is the main reason for this. Other markets have turned sluggish too, although Bangladeshi buyers seem to be more active recently than those from Pakistan and India. Increasing volatility in prices indicates that the situation will remain unchanged for some time.

Shipbroker Intermodal warns that it is not "all clear sailing" for the ship breaking industry from here on in.  "The excess supply of demo candidates continues to keep things under pressure," it says, adding that "buying interest could well decrease over the next couple of weeks. At the same time there is still limited support from the current commodity price levels which is causing a more bearish sentiment to circulate amongst cash buyers." 

Regardless, most shipowners will take some heart in the demolition numbers so far this year and hope that the trend accelerates. Most experts believe that the broader shipping industry will not recover unless the tonnage oversupply situation normalises- and the global economy stabilises. 


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