Ship scrapping activity sees sharp drop
Demolition activity during the second quarter of 2022 was less than half of the levels seen in the same period in the past year
Tankers continue to provide the majority of scrapping candidates, followed by bulk carriers
SHIP recycling levels fell to the lowest in a decade in the second quarter of 2022 and are unlikely to recover in the short term as the industry enters its traditionally quieter monsoon season.
Sixty-eight ships with a combined gross tonnage of 1.63m tonnes were committed for demolition in the three months, according to Lloyd’s List Intelligence data. That represents a fall of 56% compared with the tonnage scrapped in the same period last year, and a 46% reduction in comparison with the first quarter of 2022.
The tanker sector, in particular crude oil and chemical tankers, continues to provide the majority of recycling candidates.
A total of 29 tankers, with a combined gross tonnage of 830,000 tonnes were demolished in the second quarter, with this sector providing around half of all tonnage scrapped during the period.
However, tanker demolition levels were 52% lower in gross tonnage terms than during the first quarter, when 52 units of a combined 1.76m gross tonnes were demolished.
The decline in tanker scrapping is attributed to a significant recent fall in scrap prices, which peaked at $700 per light displacement tonne in March but are now hovering around $550 per ldt.
Furthermore, a number of deals committed shortly before the fall in scrap prices are understood to have failed on subjects, with demolition yards withdrawing from deals as demand for scrap steel has fallen due to cheap steel imports from South Asia.
Only one large tanker has been confirmed as sold for scrap so far in July. The 19-year-old long range two vessel Tellus (IMO: 9246138) was reported as being sold to Bangladeshi breakers for $580 per ldt, which realised the owner around $11.5m.
Recycling cash buyer GMS said: “It is of little surprise to see recycling markets remaining inert and quiet with rains and flooding hampering production at yards in Chattogram and Alang with labourers returning to their hometowns as recycling activities come to a seasonal crawl.”
As vessel recycling pricing has cooled off in the Indian subcontinent and Turkish markets, global recycling sentiment remains in the doldrums given the rate of the recent declines. GMS said it was no surprise to see such little activity emanating from all ship scrapping markets presently.
Global currency fluctuations remain a major concern for ship recycling businesses, though there appears to be evidence that steel prices have started to stabilise, which may provide some positive sentiment in the coming weeks.
The dry cargo sector provided the second-highest number of demolition candidates in the second quarter, with seven bulk carriers of a combined 391,000 gross tonnes making up 24% of all tonnage scrapped.
This was followed by floating production, storage and offloading vessels, gas, offshore and passenger ships with 9%, 5.8%, 2% and 1.9% of tonnage scrapped, respectively.
No containership has been scrapped in 2022, according to Lloyd's List Intelligence data. The last containership to be demolished was the 300 teu Da Fa (IMO: 9005601), which arrived at a Bangladeshi breaking yard in December last year.
On average over the past 10 years, the percentage of annual boxship fleet removal was about 1.5%, Braemar reported.
Only 0.1% of fleet capacity was retired last year, with a similar figure estimated this year. With record freight and charter rates in this sector, no containership owner is presently willing to demolish ageing vessels, instead preferring to pay for fifth or even sixth special surveys.
“Without the standard demolishing model being in operation for a couple of years there will be a build of older ships that will coincide with significant fleet growth (from newbuildings) and additional regulatory pressures driven by the Energy Efficiency Existing Ship Index. We are expecting container ship demolition to resume,” said Braemar.
As of July 1, there were 480 trading container vessels aged 25 years or more, while in the past 10 years the average age of demolition for containerships was 23 years.
As such, there is significant pent-up demand for the scrapping of older boxships, which will eventually be released. Braemar suggests that this may not occur until after the second half of 2023, however, which is when containership newbuildings will start to be delivered at really notable levels.