Half way through the year, and in aggregate tonnage terms the statistics show that the demolition market has been fairly busy. Scrapping of tonnage can act as a useful “pressure valve” in times of surplus capacity and challenging market conditions, and here we take a closer look at the extent to which this year’s vessel recycling might (or might not) be relieving some of the stress.
Key Dry-ver This Year
In the post-downturn era, ship scrapping peaked in 2012 at 58.5m dwt. Whilst levels then softened a little, 1H 2015 saw a total of 24.9m dwt sold for recycling. This helped offset around half of the 49.9m dwt delivered into the world fleet, moderating growth in global capacity to 1.4%. At a macro level this looks like a helpful “pressure valve” but has this really been the case and can the impact last?
Well, at 19.8m dwt (262 units), bulker demolition has already exceeded the full year 2014 total, and accounted for 79% of all tonnage scrapped in 1H 2015. Activity has been strongest at the larger end, with 68 Capesizes sold for recycling, compared to only 25 in the whole of last year and 51 Panamaxes scrapped, compared to 69. So, in reality, most of the impact of the elevated level of demolition in the first six months has been in one sector. Total bulker demolition has almost counterbalanced the 1H 2015 deliveries of 26.6m dwt (though slowing trade growth has also kept the market under pressure). Volumes in other sectors this year have actually been fairly subdued. On an annualised basis, dwt capacity sold for scrap outside the bulker sector in 1H 2015 was down by 42% year-on-year.
Shorter Shelf Life
Meanwhile, the age of bulkers scrapped also shows an interesting dynamic. In 1H 2015, the average age of bulkers sold for demolition fell to 24.9 years old from 27.2 in 2014, and the average age of Capesizes scrapped fell to 20.7 years. The recycling of younger units has been driven by depressed earnings and the relatively youthful age profile of the fleet; today 79% of bulkers are less than 15 years old compared to about 50% ten years ago.
Breaking Down The Factors
However, bulker scrapping has already begun to slow in recent months, and this could continue if owners become less willing to scrap more ‘youthful’ tonnage (in slightly improved market conditions). Furthermore, on the demolition market itself, sources report quieter, more uncertain conditions and weaker sentiment. Key markets are importing plenty of cheap Chinese finished steel products. This all weighs on demand from breakers for fresh candidates, and ship scrap prices have fallen.
Record Breaking Or Not?
So, despite the run-rate in the first half suggesting at a glance something close to record recycling levels this year, the impact of demolition as a “pressure valve” has not been that broad. And although the full year demolition total will likely be fairly robust, there are now some question marks over the extent to which the flow will be maintained. For those who follow the demolition market statistics, there’s plenty to watch out for post-Ramadan. Have a nice day.