Ship Recycling Bogged Down as Monsoon Period is in Full Swing

The ship recycling activity has been slow so far, with minimal transactions. In its latest weekly report, shipbroker Clarkson Platou Hellas said that “market conditions are rather sluggish this week where few, if any, transactions are being negotiated, creating a sluggish vibe within the recycling community. The slow feel for the year is highlighted by the fact that not a single VLCC/Suezmax/Aframax conventional tanker unit has been sold for recycling in the first 7 months of this year, a feat not seen since 1970. This is attributed to the ever-growing ‘dark’ tanker fleet, which has sucked all candidates away from the recycling market over the past two years. Some negative sentiment seemed to echo across the Indian sub. Continent recycling destinations this week with all areas expressing a downward trend in their respective price indications. This is primarily on the back of the monsoon onslaught currently being experienced and weakened domestic steel markets. Interesting reports arrived in the media this week with news that Petrobras has committed one of their FPSO’s internally to a Brazilian green recycling yard. Reports suggest that local recyclers have converted a local shipyard to cater for Green ship recycling and the ‘Petrobras 32’, about 37,300 ldt, built 1974 has been sold to the yard and whilst it is the first recycling project of its kind in this destination, and obviously this decision is welcomed by the NGO Shipbreaking Platform, time will tell if this yard will be able to decommission many units in a short space of time, or whether capacity will be limited as evidenced with alternative EU approved recycling yards. We probably know the answer to this despite the NGO claims of sufficient capacity!”, the shipbroker concluded.

In a separate note, Allied said that “the situation remains largely unchanged on recent weeks; rainsoaked yards with minimal staff, Pakistan out of action, Bangladesh’s central bank unwilling to release large amounts of dollars. As a result, activity remains concentrated on small, low-value deals heading to Bangladesh where prices remain +$50/ldt over what their only serious competitors in India can offer. That being said, there were a few notable sales this week. The ‘Zhong Da’ (or ‘Hong Da Xin 18’) was reported sold for a firm $608/ldt, which could indicate that the sale was agreed a short while ago; even for a container vessel, this might be difficult to achieve now.

The stellar $930/ldt for the ‘Heng Yang’ is on account of a quantity of high-quality, marine grade steel and despite of its sale on an ‘as is’ basis. Finally, the sale of the Petrobras FPSO marks the first instance of the recycling of a commercial vessel in Brazil, and comes as the company announces it will only recycle vessels in a responsible manner – with 26+ vessels due to retire over the next five years, this would represent a big loss to the old ‘green’ destinations if the majority of vessels remain in Brazil for demolition”, the shipbroker said.

Meanwhile, in its latest weekly report, GMS, said that “it has been another frustrating week across all of the major ship recycling destinations, with prices marooned / flat and businesses yet to fully resume at pace following the conclusion of Eid holidays. In the interim, the good news has of course been the accession of the Bangladeshi Ship Recycling Sector to the Hong Kong Convention (HKC), as further progress is made in recycling markets before the convention formally enters into force. Meanwhile, the lack of tonnage is also starting to subside as prices seem to further correct / stabilize and Ship Owners & Cash Buyers start to accept the reality that current prices are here to stay. Moreover, as Vessel Owners head off on their summer holidays, those with units on the verge of surveys are also making the decision to sell, all at a time when constant rains are seeing sub-continent yards operate at minimal labor capacity. Bangladeshi steel mills too are yet to fully resume operating at capacity, which is why demand for new vessels remains rather muted. As such, even on any available tonnage, prices on offer remain way below expectations and the realistic prices of today.

L/Cs and financing issues once again burden the Bangladeshi market; however, this is expected to ease in the coming week(s) as End Buyers try again to negotiate acceptable rates with the Central State Bank (as witnessed earlier this year). After years of turmoil, Pakistan recently received encouraging news of an IMF loan that will see about USD 3 billion committed over the next 9 months, further easing the liquidity crisis in the country. The first installment of USD 1.2 billion has already been received, bringing some much-needed economic relief & stability to the country and we may finally see them re-enter the ship recycling realm once commercial banks resume issuing L/Cs. Finally, at the far end and amidst the ongoing scarcity of tonnage, the Turkish market faces further downfalls in fundamentals this week”, GMS concluded.
Nikos Roussanoglou, Hellenic Shipping News Worldwide