Is Another Demolition Spike Due? Asks Braemar Seascope

As the Baltic
Dry Index plumbs all-time depths, those with long memories are recalling the
dark days of the 1980s for the shipping markets.  However, steel traders can look forward to a
bumper year of supply of vessels for recycling this year, if previous
experience offers a guide for the 2012 outlook. Bets are now being taken about
how many vessels will be forced by the weak freight markets into the arms of
recyclers.

 

Globally, ship
scrapping capacity has very big limits being a simple business of driving ships
onto beaches and cutting them up with oxyacetylene torches. Theoretically,
great numbers of ships could be sold for scrap and held as inventory by the
scrap dealers, to be pushed up the beach as and when required. Scrap prices for
ships of around USD $500 per light displacement tonne (LDT) remain, suggesting
that demand for the steel content in ships remains strong.

 

Meanwhile,
ship recycling capacity could grow further in coming years. The China State
Shipbuilding Corporation President said recently that half of China’s shipyards
could go bust in the next two to three years. Many of these yards could switch
to recycling as, theoretically, could European shipyards, though the economics
of recycling in Europe are currently not encouraging.

 

Braemar
Seascope estimates that,  in 2011, 24.2m
dwt of bulk carriers were sold for scrap, surpassing the 12.0m dwt scrapped in
2009 during the credit crunch, and the 11.5m dwt scrapped in 1998 after the
Asian financial crisis, as well as the 15.0m dwt scrapped in 1986, the year the
BIFFEX bottomed out at 554 points on 31 July. 
2011 was not a record-breaking year for tanker recycling despite the
poor freight markets.  For four years
from 1982 to 1985 over 20m dwt of tankers were recycled while 14m dwt was sold
for demolition in 2010. Last year saw 8.4m dwt of tankers recycled, with the
figure for January 2012 maintaining the trend.

 

Scrapping of
all types reached 41m dwt in 2011, making it the third biggest year for
demolition ever. The second biggest 1986 when 43m dwt was scrapped, and the
biggest ever was 1985 with 44m dwt sent to the beaches. Mark Williams, Braemar
Seascope research director in London, said: “If macro-economic conditions in
2012 continue to underwhelm and if scrap prices stay at their recent high
levels, this year could easily surpass 1985 as a peak year for demolition.”