Scrapping of Older Ships Still Lagging Despite Urgent Need for More Decomissionings

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Scrapping of Older Ships Still Lagging Despite Urgent Need for More Decomissionings

The need to alleviate tonnage oversupply is still a major concern among ship owners. However, over the past few weeks, sales of older ships for scrap haven’t been exactly booming. In its latest weekly report, shipbroker Clarkson Platou Hellas commented that “the mood in the sub-continent continued to amble along last week with only smaller ldt tonnage seemingly being proposed to buyers as the summer slowdown continues. With most end recyclers/labourers now away from their daily business due to the monsoons and vacations, the appetite from the waterfront has waned and this has been reflected in the current prices that are on offer. There was also some less than encouraging news coming from Pakistan as the Rupee had a further devaluation which was enforced by the central Bank as well as the interbank raising its lending rates by 1% to 7.5%. This will cause further detriment to the local recyclers ability to obtain finance to import vessels for recycling as there importing costs are increased. This has been also coupled with the unwelcome news that a small fire broke out on a recently imported VLCC, fortunately there were no casualties reported and the cause of the fire remains unknown. Whilst it is reported that this was not the result of any cutting, it sadly could further delay the authorities instructions to permit cutting on the recently delivered tankers, and this may also affect local sentiment”.

Clarkson Platou Hellas added that “away from the recycling sector, but potentially indirectly involved, the announcement at the beginning of the month from the Chinese Ministry of Transport that from 1st September, 2018, all vessels intended to be imported into China must comply with ‘Tier II NOx’ emission limit has sent ripples through the second hand market for older tonnage. Tier II regulations came into force in January 2011, a big shift from the previous cut-off of 18 years old. The vast majority of 2000-2002 built Panamax and Supramax sales over the last few years have been to domestic Chinese import buyers, but with this buying pool now effectively finished, the question is whether other second hand buyers will step into the vacuum, or if this will result in an increase in scrapping as older tonnage approach their surveys. We shall see which direction this position takes”.

In a separate note, Allied Shipbroking added that “subdued activity in the recycling market was sustained for another week, as the monsoon period still has the Indian Sub-Continent on hold and with market participants waiting the end of the summer in order to proceed with further purchases. The vast majority of reported activity this past week referred to tankers, including Jade Prosper, a 19-year-old VLCC scrapped in Bangladesh. At the same time, no activity was to be seen in terms of dry bulkers, while limited activity was observed in the rest of the sectors. All in all, the significant increase of the US dollar compared to Pakistani & Indian Rupee and the slight decline in local scrap steel prices has affected end buyers sentiment, leading the market into another relatively lethargic week. The market expects this trend to continue for the following weeks, with more significant deals to be awaited after the monsoon period. Prices are also expected to remain relatively unchanged during the next few weeks with only minor fluctuations anticipated”.

Meanwhile, GMS, the world’s leading cash buyer said that “uncertainty in the Indian sub-continent recycling markets showed few signs of abating this week as prices and sentiments over the traditionally muted summer / monsoon months remain historically aligned and firmly planted in the doldrums. Although a few market sales could certainly assist in setting the industry on a more even keel, local strikes (in India), political uncertainty (in Pakistan) and constant rains across the board are currently pulling all sub-continent markets even lower. On the flip side, the dithering supply has given certain Cash Buyers with unsold inventory in hand, the opportunity to offload some of their vessels, albeit at much lower and loss making levels, following some of the exuberant above market purchases over the last few months. Indeed, prices over June & July have deteriorated by as much as USD 50/LDT in virtually all locations, as the rot truly sets in following a busy year of (particularly large tanker) purchases.

As such, local port positions continue to display the depleting level of market fixtures with minimal arrivals and beachings over the last couple of tides (See Local Port Positions on Page 8). Notwithstanding, prices and sentiment are expected to pick up going into the fourth quarter of the year, especially if supply remains as muted as it has been and Owners continue their ongoing reluctance to commit their units at the increasingly lower levels that have been on offer of late. News also emerged this week of the final death knell for the Chinese ship recycling market, with the one open recycling yard reportedly having a quota of less than 15,000 LDT of foreign flag tonnage to import – that too at miserable rates in the mid USD 100s/LDT ahead of the impending Chinese closure on international flagged tonnage from January 1 st, 2019”, GMS concluded.
Nikos Roussanoglou, Hellenic Shipping News Worldwide

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