Fewer ships sold for scrap in June, adding pressure to freight rates
Wednesday, 21 July 2010
The easing of vessel tonnage supply should be among the main concerns among ship owners, especially those active in dry bulk shipping. The reason is pretty obvious; any additional supply is hurting the market’s chance of a recovery in rates, with the dry bulk industry’s main benchmark, the Baltic Dry Index (BDI) having nosedived for 35 straight session, losing more than 55% of its value back in late May. As a result, some owners have even pulled out some of their vessels from the market. With June proving to be a rather challenging month in terms of vessel earnings, older carriers could have been led to scrapyards for sale, given the higher offers their owners could receive. Still, as the latest monthly demolition report from shipbrokers Golden Destiny indicates, last month saw the sale for scrap of 79 vessels with a total deadweight of 1,605,994 tons, a negative monthly change of 22.5%. Market analysts who spoke to Hellenic Shipping News Worldwide earlier said that one reason for that, was that older dry bulk vessels, could still earn good profit in the spot market, holding their rates better than their modern counterparts.
As a result, tankers and liners represented the biggest share of the demolition market in terms of reported number of transactions while in the bulk carrier sector the demolition activity is still at low levels. During June, when the BDI lost 41% of its value, just 8 dry bulk carriers were sold for scrap, bearing a total capacity of 127,775 tons. According to Global Destiny, “tankers are estimated to hold 27.8% of the demolition market and liners with Pax/Ro carriers around 15% and 16% respectively. Bulk carriers and containers demolition activity is estimated around 10% and 7.6% respectively while in the other sectors no significant movements have been reported”.
Still, during the same month of 2009, the demolition activity was standing at much lower levels with 52 vessels reported to have headed to the scrap yards of total deadweight 1,475,699 tons. In terms of reported number of transactions, the majority of the demolition activity had been recorded in the container market as the charter market activity was barely at subsistence level and the laid up container fleet was standing 10.3% of the existing fleet by capacity in early June 2009. In total, 19 containers reported to have headed to the scrap yards equaling to a total deadweight of 550,667 tons whereas in today’s market the container demolition activity is estimated to 6 vessels equaling to a total deadweight of 222,313 tons. Golden Destiny said that “container charter rates started to be beyond minimum operating costs in May 2010 after the significant rise in freight volumes on the Asia-Europe trade witnessed in recent months with the laid up fleet represented just 3.6% of the container ship fleet in early June 2010”.
During the first half of the year, a total of 508 vessels have been sold for scrap, amounting to a total deadweight of 14,753,789 tons with tankers, liners and Pax/Ro carriers representing the highest demolition activity, estimated to hold around 29.5%, 22.6% and 14% respectively of the demolition market in terms of reported number of transactions. As the report states, “demolition activity has recorded a 65.2% & 36.5% decline in bulk carrier and container sector respectively in terms of reported number of transactions in comparison with the first six months of 2009. Although the demolition activity in January to June 2010 estimated to have been increased only by 10.4% in contrast to similar period in 2009, is up by 379.2% in comparison with January to June 2008 when only 106 vessels reported for scrap equaling to a total deadweight of 3,357,735 tons. During January to June 2008, tankers were the most popular scrap candidates as almost 50% of the total number of demolition transactions were reported in the tanker sector. In the bulk carrier sector, only one unit reported to have gone for scrap when the BDI was standing at 9,589 points at the end of June 2008, showing signs of decrease from its peak at 11,793 points in May 20th, 2008. It remains to be seen how the market will react after the recent fall in the dry freight market depending on the seasonality of summer period, the general influence of the low freights and the inflow of newbuilding deliveries” Golden Destiny said.
In terms of prices offered, India and Pakistan are taking the lead with China following. June ended with demo countries paying $340-$370/ldt for dry and $365-$400/ldt for wet cargo. In June 2009, the scrap rates were standing at much lower levels with Bangladesh and China offering the highest scrap rates, $220-$240/ldt for dry and $270-$310/ldt for wet cargo. In June 2008, scrap rates were fluctuating at the high levels of xs $600/ldt for dry and region $700/ldt for wet cargo with China offering only $370/ldt for dry and $425/ldt for wet cargo.
Nikos Roussanoglou, Hellenic Shipping News Worldwide