Weakness of scrap prices delays ship demolition deals

Technorati Tags: Baltic Dry Index,Baltic Dry Indices,Ship Chartering,Shipchartering,Voyage Fixtures,Time Charter Fixtures,Panamax,Capesize,Handymax,Handysize,Supramax,Dry Cargo Fixtures,Bulk Cargo Fixtures,Baltic Exchange,Freight Review,Maritime Baltic Index,Maritime Industry,Scrapping,GMS Report

Monday, 29 December 2008

The last week of the year was marked by relative calmness, according to the latest report on the demolition market, compiled by GMS. Since the beginning of October the world market has been characterized by an aggressive supply of tonnage, followed by intense sale and purchase activity in scrapyards around the world, as ship owners looked to offload older tonnage. With freight rates dropping near all-time lows by November, one of the options that owners looked to exploit, in order to raise funds and increase their liquidity was to scrap older tonnage, even at significantly lower prices. This past week though was noted with modest activity. According to GMS, “with the shipping community busy with Christmas celebrations, except for a few last minute pre?Christmas deals, the general attitude was to delay further sale and purchase activities until after the holidays. After several weeks of anticipating a softening in scrap prices (due to the voluminous supply of vessels), the recycling industry was greeted with a weaker demand and price emanating from Bangladesh and Pakistan. India wobbled early in the week but ended the week pretty much where it closed last week. In addition to the holidays, weaker prices gave sellers an incentive to delay their negotiations. As a result, we saw relatively fewer fixtures this week as compared to the last two weeks”.
As one would expect the main “contenders” for a place in scrapyards were dry bulk carriers, which continue to dominate the majority of scrap sales. What’s notable is the return of capesize vessels, with at least two heading for scrap last week, while GMS predicts that another three will follow them next week. India remains ahead of the competition, managing to maintain its lead over Bangladesh. “If this pace continues, we are likely to see India outrun Bangladesh in terms of both volume and LDT of ships being recycled. Of course, India has almost seven times more recycling capacity than that of Bangladesh. Therefore, this one market can come to the rescue of the increasing global supply of vessels for scrapping.