Ship demolition activity increases by 10.6% during October, but numbers still low to offset looming

A total of 83 vessels were scrapped during October with an agreggate capacity of 2,17,061 tons, which represented a monthly increase of 10.6% versus September said Golden Destiny in a report. Among the positive signs was a moderate rebound of dry bulk scrapping, with 15 vessels of a total deadweight tonnage of 815,172 tons leaving the market and being sold for scrap last month. It’s an oustanding increase of 200% compared to September. Still, as the shipbroker’s report notes, “the volume of bulk carrier’s demolition transactions during the year to date is down by 53% in comparison with a similar period of 2009”.
In terms of reported number of transactions, tankers and liners still hold the lion’s share of the market, 27.7% and 25.3% respectively, whereas container’s demolition activity is standing at virtual standstill with only 2 units reported for scrap equalling a total deadweight of 54,870 tons. According to Golden Destiny, “in the container sector, as the peak season ends and spot freight rates are on downward trend, liner operators may become eager to send their vessels for scrapping in an attempt to relief the industry from the supply growth and keep the freight rates firm. Overall, the demolition activity during October hovered around almost the same levels of previous month in all vessel sectors except for bulk carriers. However, we remain cautious for the future of bulk carriers’ demolition activity as albeit the current slide of the BDI, owners seem not to be willing yet to scrapped their overaged units as long as the demand for the purchase of seconhand units for further trading persists and time charter earnings are above vessel’s operating expenses” it said.
In terms of scrap rates, India continues to offer the most competitive rates, $430/ldt for dry/general cargo and $465/ldt for wet cargo, with Pakistan and China paying higher prices since the end of September. China is paying $20/ldt more for dry/general cargo and wet cargo, while Pakistan $15/ldt for dry/general cargo and wet cargo. “The emerging news of Bangladeshi market with some signs of activity in recent days led breakers in India, Pakistan and China to be more aggressive as the Diwali and Eid festivities came to a close. However, Bangladeshi market is not fully opened as only 16 or 17 of more than 100 shipyards have been granted permission to recommence recycling following a long run dispute by the Bangladesh Environmental Lawyers Association. Furthermore, yards are facing with the challenge of compliance with a list of more than 60 conditions that have been set by Environmental Association otherwise no further permissions will be granted. Furthermore, sources suggesting that vessels beached in Chittagong are not being sold by owners but rather by cash buyers who may have purchased them far back before the closure of the market and have waited for Bangladesh to open.
The news of Bangladesh’s opening undeniably threatens the future of India that will have to compete with the hungry breakers of Chittagong by offering even higher prices once Bangadesh industry is fully opened. During the year to date, India is on the lead by holding around 44% of the total number of units reported for scrap, but it seems almost inevitable that Bangladesh will outpace India’s strength in the shiprecycling industry till the end of the year” said the report.
Meanwhile, from the beginning of the year, a total of 806 ships of all types and almost 22 million tons have been sold for demolition since the beginning of the year (October included). Tankers and liners have been the dominant force behind these sales, with a share of 28.6% and 24.6% respectively. Bulk carriers and containers are the sectors with the lowest activity recorded since the beginning of the year amid the concerns of oversupply, as the freight market in both sectors remained at healthy levels for the owners throughout 2010. In comparison with a similar period of 2009, the demolition activity is up only by 0.6% and it seems that the almost 6 months of inactivity of the major player “Bangadesh” had a negative impact on the volume of demolition transactions reported after the second quarter of 2010.
“During January to October 2009, 152 vessels reported to have been sent for scrap in Chittagong, which is almost dual of the number of vessels scrapped within 2010. At the end of October 2009, Bangladesh and Pakistan were in the first rankings of the industry, by offering $300/ldt for dry/general cargo and $330/ldt for wet cargo, with India to follow. China’s activity was at subdued levels by offering only $260/ldt for dry/general cargo and $270/ldt for wet cargo. At the end of October 2008, scrap rates were at much firmer levels with Bangladesh paying $500/ldt for dry/general cargo and $540/ldt for wet cargo, whereas the demolition activity was down by 74% from today’s levels in terms of reported number of demolition transactions with only 206 vessels reported to have been sent for scrapping equaling a total deadweight of almost 6 million of tons” said an earlier analysis from Golden Destiny.