Bulker owners could be a lot happier come Christmas if the latest research on the demolition market from Lorentzen & Stemoco proves correct.
The Oslo-based shipbroker says there is potential for up to 100 capesize bulkers to be sold this year if the current frequency of scraping is kept up.
Lorentzen & Stemoco says that up to forty capesize bulkers have already gone to the breakers yard so far this year.
“With an average size of 160,000-dwt per ship, that means some 6.3mdwt has been sold for demolition according to our research,” it said.
“Given that the scrapping activity continues throughout June, some fifty capesize bulkers could be exited from the market within the first half of the year, potentially doubled to 100 ships for the year as a whole.”
“If so, more than 15mdwt of the biggest bulk carriers could be removed from the market in just a single year,” said analyst Nicolai Hansteen.
It says adding in the old panamaxes and handymaxes as well as handysize bulkers that could be following suit; total scrapping of 20mdwt appears “increasingly realistic.”
The three factors driving the demolition binge include the poor freight rates, high bunker prices and rising steel prices, according to the broker.
“Demand for Capesize bulk carriers is running at 88% compared to vessel capacity, which is an improvement from the lows of a fortnight ago, but still insufficient to uplift freight rates substantially,” said Hansteen.
One recent analysis of the dry bulk market by shipping blog Ton Mile Trader noted that almost 26% of all the 140 fixtures seen last week were for ships built since 2010.
And although bunker prices have softened moderately in recent weeks, Hansteen says fuel charges are considered exorbitant by most owners oriented towards the spot market, particularly those with fuel-thirsty ageing vessels rendered redundant in a soft market.
Lastly, he says rising steel prices means owners are faced with higher steel-strengthening costs associated with fourth and fifth special surveys.
Conversely, surging scrap prices offered to owners contemplating demolishing their vessels have made the choice even easier, he argues.
The recent reported sale of the 305,000-dwt OBO Alster N (built 1988) with 42,500 ldt was sold for $510 per ldt, or $22m.
“More scrapping of ageing bulkers has the potential of critically offsetting the influx of newbuilding deliveries,” says Hansteen.
He says that over 130mdwt of bulkers are scheduled for delivery in 2011, yet only 30mdwt was delivered in the first four months.
“This suggests that 90mdwt will be entering the market in the course of the year, taking cancellations and slippage into consideration.”
“Given that 20mdwt of existing vessels could be scrapped, the net influx would be 70mdwt. That is still higher than the demand growth of 50mdwt, but at least narrowing the imbalance.”