Scrapping of older vessels is still ranging at high levels, as more and more owners have realized that demolition activity is one of the most crucial elements in helping the freight market rebound, i.e. via removing older tonnage to make room for newer. In its latest report, Clarkson Hellas said on the demolition activity that "a stable market is the best way to describe the current situation. It is evident that Buyers remain interested to acquire units, however, we have turned the tide and they are no longer willing to accept owners demands. With the continuing supply still exceeding actual demand, Buyers are now able to ‘pick and choose’ their preferred candidates. We see evidence of this changed attitude in the reported sales this week. Several units that have been sold this week have been circulating for quite some time. Owners had been pushing to achieve the high numbers seen in previous months, but were forced to come to the realization that the market was not there to support such prices. The market has not bounced back to the previous highs and subsequently Owners have had to sell their units at the new, reduced rates. Chinese rates have been stuttering along this week as the domestic market saw steel prices falling daily. As a result it has proved difficult to achieve positive offers. This is further affected by local owners’ tonnage being paraded into the local market. Elsewhere, Indian breakers continue to show their eagerness to acquire new tonnage, although it is worth highlighting that most breakers are not offering at particularly aggressive rates" said Clarkson Hellas.
In a separate report, shipbroker Golden Destiny mentioned that “scrap price levels continue to be soft as supply of tonnage for disposal is surpassing demand under the current sluggish freight market with owners be more than willing to remove their vintage capacity from their fleet. Scrap prices in the Indian subcontinent region for dry units are in the mid / high $400/ldt and excess $500/ldt for wet units, while levels in China are still below $450/ldt. Few deals are reported in the Bangladesh with India still leading the game. Even Bangladesh has opened the market is still very delicate from prompt and timely deliveries as new regulations and paperwork put obstacles in the strength of the major shiprecycling industry.
The week ended with 11 vessels reported to have been headed to the scrap yards of total deadweight 665,973 tons. In terms of the reported number of transactions, the demolition activity has been marked with a 35% week-on-decline due to 50% lower scrapping removals for bulk carriers, tankers and liners, whereas there has been a 47% fall regarding the total deadweight sent for scrap. In terms of scrap rates, the highest scrap rate has been achieved this week in the container segment by India for a 12,861 ldt unit built 1983 at $502/ldt with sufficient fuel for voyage. Bulk carriers have grasped the lion share of this week’s total demotion activity, 55%, with India winning 54% and Bangladesh 18% of the activity. At a similar week in 2011, demolition activity was down by 36% from the current levels, in terms of the reported number of transactions, 7 vessels had been reported for scrap of total deadweight 562,242 tons with bulk carriers grasping 72% of the total number of vessels sent for disposal. India and Pakistan had been offering $455-$465/ldt for dry and $485-$495/ldt for wet cargo, while Bangladesh market had been inactive from the demolition scene” concluded the Piraeus-based shipbroker.
Meanwhile, attempting to justify why ship owners are still that much active in the newbuilding market, Intermodal’s Panos Tsilingiris said that “, the price of a newbuilding could be considered "cheap" not only if it is historically inexpensive, but also if its price is below or close to its cost. Looking back the 20-year history of Panamax newbuildings, three local lows stand out: (a) in 1999q1 in the very high teens; (b) during 2002 with prices stagnating in the low 20s; and (c) today with prices being rgn 28million USD. In fact, current inflation adjusted prices indicate that today we may be close to the lowest price levels of the 20-year history” said Tsilingiris.
He went on to state that “the cost criterion is more difficult to be applied since manufacturing cost is not publicly available information due to competitive considerations. Still, we have positive hints that today newbuilding prices are much closer to the cost of building a vessel, which can principally be broken down into steel, machinery and labor costs (we do not consider here overhead, class, etc costs and productivity considerations). Suggestively, hot-rolled steel prices are today rgn 800usd/ton compared with mid-high 200s USD/ton in 2002h2 and low 200s USD/ton in 1999q1, when the other two lows occurred. Needless to say, since then both machinery and, especially, labor costs have soared.
To recap, according to both our criteria Panamax newbuilding prices, appear "cheap" or "low". In the very next quarters, two facts will possibly concur: (a) newbuilding prices will reach a new local minimum; and (b) more future-oriented vessel designs (focusing on energy-efficiency, not deadweight maximization) will emerge due to the new market drivers. A savvy shipping investor cannot afford to miss this opportunity” concluded Mr. Tsilingiris.