Strong Shipping Market Hurt Demolition Market During Second Half of 2019

Strong Shipping Market Hurt Demolition Market During Second Half of 2019

in Hellenic Shipping News 28/12/2019

The ships’ recycling market has been mixed during 2019, with the first half being rather normal, before plunging by 20% over the second half, mainly as a result of improved freight rate markets. In its latest report, shipbroker Clarkson Platou Hellas said that “it has been a year of two halves where the first six months were very encouraging and prices where a shade below the US$ 500/ldt level, with a steady flow of tonnage entering the market. This stopped short and started to become what can only be described as a forgettable second half for the recycling industry with supply down 20% from last year but unlike other years, price levels not rising on the back of the shortage”.

The shipbroker said that “the strong freight markets across all shipping sectors performed well which represented the lack of tonnage supply. This has made it very frustrating for cash buyers as they have had to fight hard and show their robustness in this challenging year. However, demand from the waterfront has also caused temporary issues as a slowdown in the economies from the Indian Sub. Continent markets affected internal infrastructure projects and therefore, the requirement of steel. These challenging factors are the fundamental reasons why we have seen almost a USD 100/ldt drop from the beginning of 2019 as the market slowly declined and resulted in a situation not witnessed for many years. Confidence certainly became affected during the course of this year on the back of the cautious attitude adopted by the end users (recyclers)”.

According to Clarkson Platou Hellas, “whilst the Bangladeshi recyclers had a fruitful first half of 2019, the budget announced mid-year caused a panic locally and caused price levels to fall leaving several cash buyers with large volumes of the bigger LDT units in their hands unable to resell at anything resembling the high rates they acquired them at and subsequently, many vessels remained unsold until recent times, possible causing some big losses for these buyers. Pakistan has basically been extinct this year acquiring only a trickle of units throughout the year as there was a real lack of demand due to varied internal issues including poor steel markets caused by the import of cheap finished products from surrounding countries. The influx of cheap steel really affected the domestic need of ship steel. India has remained the forerunners of purchasing tonnage that required to be recycled in an environmentally friendly way and the year saw more Alang yards obtaining class approvals for ship recycling under the Hong Kong Convention. Bearing in mind that the Convention was established only a decade ago, it shows that whilst yards can improve, it does take time. Recently we have seen the Indian Government passing the ‘Ship Recycling Bill 2019’ and subsequently, ratifying the Hong Kong Convention meaning that in the next year or two, all Indian ship recycling yards will be Hong Kong Government compliant, an incredible achievement and many plaudits must go to the local recyclers of Alang. Whilst the lack of tonnage was clearly evident during 2019, on a positive note we anticipate 2020 to be more confident and optimistic in the recycling industries with more demand and hopefully, recyclers from Pakistan once again entering the fray as the supply of tonnage is expected to increase. 2020 brings with it more changes to regulations, in particular, the one great alteration to the shipping industry with the implementation of the ‘sulphur cap’ under the IMO 2020 regulations which should persuade more Owners to consider recycling for their aging units”, the shipbroker concluded.

In a separate weekly note, shipbroker Allied added that “a significant step back in terms of activity was noted during the past few days in the ship recycling market, opposing that way the good flow of the week prior. Furthermore to this, given the sluggish mode that is starting to emerge as we approach the closing of the year, it is highly unlike that we will witness any significant change in the remaining days of the year. The truth is that the y-o-y change in offered numbers is in the region of 50 US$/MT or something that hasn’t helped the overall bearish scene noted during the biggest part of this year. Notwithstanding this, the recent trends noted in the demolition market have currently built a far more bullish attitude (for the upcoming period at least). With buying appetite amongst the main breakers being on the rise, while, at the same time, freight rates in the dry bulk sector under a hefty downward pressure, we may well expect a robust volume to take shape during the early part of 2020. With all that being said, a lot will depend also on how many interested parties will respond to the upcoming regulatory changes (IMO 2020)”, the shipbroker concluded.

Nikos Roussanoglou, Hellenic Shipping News Worldwide