Ship scrapping likely to wait another year before rebounding
Shipping is enjoying a boom in all sectors, except for that of scrapping. In 2005, just as in 2004, the scrapyards have seen no signs of a rebound as shipowners appear happy to hold on to their aging vessels. The countries with a traditional lead in the sector are now feeling the effects: In India, for instance, specialized shipbrokers told industry publication Tradewinds that out of the 180 scrapyards that operated four years ago, only 20 or 30 remain active today. They even expressed their concern as to how those scrap lots could return to operation should there be a surge in demand in the future. The picture is similar in China and Pakistan, two more countries specializing in ship scrapping, where activity in 2005 was close to none. The only country with some activity was Bangladesh, one of the new forces in the sector. Local entrepreneurs even tried to maintain prices at high levels, resorting to a cartel practice, which is quite common in the sector, as they collaborated in following similar pricing patterns. In scrapping, shipowners sell a vessel for a specific amount of money per ton of melted steel. Then purchasers melt the ship’s steel and channel the raw material to the market for other uses. Ships are not the sector’s sole object, as the lack of ships for scrapping in the last couple of years has forced a number of professionals to turn to other steel sources, importing supplies from South America and West Africa in order to survive. If this trend continues in the future, fears are being voiced that scrap companies will stop pursuing deals with ships. The figures presented by Clarkson Shipping Intelligence, one of the most respected research firms in shipping, are indicative: By early December 2005, it is estimated that ships of no more than a total of 5 million deadweight tons (dwt) were sent for scrapping during the year, a decline of 44 percent from 2004 when the figure reached 10 million dwt. Going back to 2003, figures are impressive, as ships sent to the scrapyard had a combined capacity of 27.1 million dwt, while in 2002 the figure reached 28.4 million dwt. This illustrates the huge decline in the sector. Over the course of 2005, one of the most popular categories of ships to head for scrapping were small tankers (up to Aframax category). Shipowners, however, are choosing to retain their old ships on the market as they continue to fetch good freight rates. Another reason is confusion about what ship categories (age, type, etc) ought to be withdrawn according to new directives. Nevertheless, scrap prices remain particularly high, about twice as much as in 2002, when activity was about six times as high as in 2005. The latest data suggest that rates for tankers exceed $360 per ton; recently there were reports of $385 per ton, while some people believe the market will soon reach $400 per ton. Rates for bulkers were somewhat lower, up to $350 per ton. Forecasts for 2006 are not particularly optimistic, although some market professionals expect the flow to increase mainly thanks to bulkers and Aframax tankers. Most observers see a possible rebound coming in 2007, as until 2010 a significant part of the existing fleet must be withdrawn due to new regulations about the age of ships.
