Dry bulk demolition jumps in 2016 Q1 but scrapping age is key

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Dry bulk demolition jumps in 2016 Q1 but scrapping age is key: sources
in Dry Bulk Market,International Shipping News 09/04/2016

[img=120x0]http://www.hellenicshippingnews.com/wp-content/uploads/2016/04/thunder_bay_bulk_terminal_dry_bulk_carrier-290x242-120x100.jpg[/img]The crumbling dry bulk market witnessed a demolition spree in the first quarter, but returns for shipowners are still barely able cover operational costs, market sources said this week.
While increasing the demolition rate is key to stemming the collapse in freight rates, dry bulk market watchers say the torching of slightly younger vessels along with the scrapping of older ships would have a greater impact.
The scrapping in Q1 was in the range of 12.5 million-14.5 million dwt after 145 to 180 vessels were torched; this was up 42-57% year on year on volume and up 15-23% based on the number of vessels, according to estimates Platts received from various market participants tracking the demolition.
Notably, only six vessels that were built in 2001 or later, which are considered to be relatively younger vessels, have been scrapped so far including four Capesizes and two Panamaxes, according to Eva Tzima, Intermodal Shipbrokers’s head of research and valuations.
“As a charterer today, you can clearly cherry pick your vessel. So you’re more likely to go for the younger ship, but that’s not a legal requirement,” said a research analyst with a shipbroking firm, adding that about 7% of the fleet is currently over 20 years old and it was normal for older vessels to be scrapped first.
Usually, the demolition age is dictated by market sentiment and conditions.
Past trends have indicated that the demolition age tends to get lowered when freight rates are abysmally low, like in 2013 when the average scrapping age was close to 23 years. In 2014, when the market partly recovered, the average age was around 24.5 years, according to a Baltic and International Maritime Council, or Bimco, report.
“Scrapping is the most immediate way to reduce the number of ships in the water. However in order for it to be meaningful, it needs to be a significant number of ships demolished. Its important to keep in mind that in 2016 we are expecting approximately 54 million dwt [35% slippage included] to be delivered,” said Konstantinos Papazoglou at Bancosta Research. CAPESIZE, PANAMAX VESSELS GETTING THE AXE
Among the various dry bulk segments, the Panamax and Capesizes vessels were the main candidates for scrapping. More than 50 Panamax vessels adding up to about 4 million dwt and close to 50 Capesizes totaling 8 million dwt were scrapped during the first three months of 2016.
In the smaller segments, demolition has yet to gather pace, with only around 55 Supramax and Handysize vessels, totalling 2 million dwt, being scrapped over the same period.
While scrapping activity increased in Q1, expected deliveries of newbuild vessels during 2016 would still result in a net fleet growth, sources estimated.
“I expect the rate of demolition in the bigger sizes, especially in the Capesize segment, to continue at the same pace at least for the next and probably the third quarter of the year as well. The firming in demo prices that we have been witnessing in past months should also support this trend. In the geared sizes I expect the rate to gradually slow as earnings have been recovering much faster,” Tzima said.
“Scrapping is a step in the right direction and coupled with minimal ordering should help, but it needs to be sustained,” said Papazoglou, adding the net fleet growth for 2016 was seen at 3%, after accounting for a 35% fall in new deliveries.
Tzima estimated Capesize vessels will have a negative fleet growth of 2% by end 2016, while the Handysize, Supramax and Panamax segments were estimated to grow 3.2-3.7% over the same period.
Source: Platts
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