In the initial aftermath of the world economic downturn, global vessel demolition hit 33m dwt in 2009, followed by 28m dwt in 2010 and 43m dwt in 2011. In 2012, sales for scrap peaked at 58m dwt, and then totalled 47m dwt in 2013. At such elevated levels, compared to the annual average of 18m dwt in the 2000s, it’s worth considering how high a total might be maintained in the years ahead.
In the first 8 months of 2014, robust levels of demolition have continued, with total sales for scrap amounting to 23.5m dwt, including 10.0m dwt of bulkers and 6.4m dwt of tankers. As the graph shows, the average age of vessels sold for scrap in the year to date stands at 27.5 years, having fallen from around 30 years in the period 2009-11 when the weak earnings environment took hold and encouraged the clear out of old ‘surplus’ tonnage.
However, with many of the units demolished coming from the larger, volume sectors where scrapping ages have generally been younger (the average age of demolition of VLCCs and Capesizes this year has been 21.0 and 24.1 years respectively), the average age of dwt capacity demolished has been lower than the average by ship number, standing at 24.7 this year.
Weak market conditions have ensured that owners have continued to scrap older tonnage, but, with markets by nature cyclical, to what extent could the elevated level of demolition continue in the future? Well, whilst it provides no guarantee of scrapping levels, the age profile of the fleet remains a useful indicator. In reality, market conditions, costs and timings of special surveys, and steel scrap market conditions help determine owners’ decisions, and in today’s environment fuel efficiency and regulatory concerns also play a key role. Nevertheless, the profile of fleet capacity hitting ‘average’ scrapping age gives a hint as to the direction of future demolition levels.
Help From The Aged
The graph shows historical scrapping and capacity set to reach 25 years old each year. There’s also a long ‘tail’ of capacity older than 25 years (103m dwt built pre-1989), and the graph includes a share each year. This adds up to an indicator of ‘scrap candidate capacity’. In 2017, when today’s 22 year old capacity hits 25, it reaches 23m dwt and by 2020 it is up to 35m dwt. Not all sectors have the same age profile, and many ships have a longer life than 25 years, but no doubt some younger tonnage will be scrapped too. What is clear is that more capacity was delivered in the mid-to-late 1990s than in the early 1990s and late 1980s, and this will drive scrapping at some point.
On The Level?
So, the big slump led to elevated levels of scrapping that the flattish deliveries of the 1980s and 1990s initially suggested it would be hard to maintain. However, scrapping has rolled on robustly, and the fleet’s age profile suggests that, in a few years, it may be easier to reach similar levels. Market conditions will mean that actual volumes move in cycles, but particularly with fuel and regulatory agendas to the fore, accelerated levels of demolition might become more common.