Thursday, January 15, 2009
Tonnage supply to be limited further by scrap deals
Thursday, 15 January 2009
With the Baltic Dry Index posting a sustainable rise from the first days of the New Year, a restrained optimism has returned in the market, with the influence of various scrap deals not appreciated as much. Owners have returned to scrap yards by the dozens, eager to sell their older dry bulk carriers, now posting losses as opposed to hefty earnings up to six months ago. According to figures compiled by George Moundreas & Co. the average weekly volumes of dry bulk tonnage that left the market for scrap was increased at 600,000 dwt, versus 400,000-500,00 during the previous weeks. Further to that, the broker reports that negotiations are currently taking place for the scrapping of at least 157 vessels with a capacity of a stunning 5.5 million dwt. This could mean that by the end of 2009 a “healthy” 10 percent of the global dry bulk tonnage may have exited the market. At the same time, what’s rather encouraging is that scrap prices remain at a healthy $250-275/ldt. Of course, reports for the demolition market have indicated, with reference at breakers in the Indian subcontinent, that these prices will somewhat soften. Nevertheless, India seems to be buying tonnage more aggressively than any other at the moment, while China is hovering between $215-220 per ldt. The swift response of ship owners to current market conditions has helped alleviate the supply/demand balance which at the moment favors those standing from the “demand’s” point of view.
Some figures compiled by Drewry Shipping Insight are rather helpful to see the amount of ships flocking demolition sites around the world. The dreadful market conditions of 2008 brought the biggest number of bulk carriers to scrap yards in three years. According to Drewry, a total of 2,704 ships were demolished up until the end of November. In fact all of these ships were sold for scrap from August onwards, since up to then zero vessels had left the market. Only in November a total of 2,075 ships were sold for scrap, a number equal to the combined number of vessels headed for demolition during the years 2006 and 2007! But it is the comparison between 2008 and 2007 that is even more impressive. During 2007 a mere 374 dry bulk carriers were retired and sold for scrap with many months showing no activity whatsoever.
On the contrary, the tanker market proved a lot more balanced, not only because the freight rates kept a more steady pace, but also because of the new rules which will be put in effect from next year (2010) onwards, banning the use of single-hull tankers in most parts of the world. As a result, older tonnage was sold for scrap at hefty rhythms i.e. 3,921 tankers in 2005, 2,646 tankers in 2006, 3,170 in 2007 and 3,753 up until November of 2008.
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