Strait of Hormuz uncertainty keeps ageing ships from recyclers

Global ship recycling activity remains subdued despite signs of easing tensions in the Middle East, says ship buyer GMS, while strong freight earnings encourage owners to keep older vessels afloat rather than selling them for scrap.

According to GMS’ latest report, while a tentative agreement between the US and Iran could eventually lead to the reopening of the Strait of Hormuz, uncertainty surrounding the deal continues to influence shipping markets.

The proposed framework would extend a ceasefire and begin efforts to reopen one of the world’s most important maritime routes. Nevertheless, negotiations remain complex and several security incidents have been reported in the region.

Low recycling incentive

While political developments have captured headlines, freight fundamentals are having a greater impact on recycling activity, the report says. The Baltic Dry Index recently climbed above 3 100 points. As a result, earnings for larger bulk carriers remain attractive. Consequently, shipowners have little incentive to retire older tonnage.

Higher freight rates allow ageing vessels to continue generating profits so that ships that might normally be sent recycling yards are staying in service. At the same time, falling oil prices have done little to alter market sentiment. Brent crude has eased from recent highs as traders anticipate progress in regional negotiations.

Scrap sales’ yearly low

The slowdown is visible in recycling statistics. Data from Lloyd’s List Intelligence shows global ship recycling sales fell to their lowest level in a year during May. Most transactions involved vessels from niche sectors. Activity in the dry bulk and container markets remains limited.

One notable deal involved the 42 300 dwt forest products carrier Grouse Arrow. The vessel, built in 1991, became the third ship sold for recycling from the G2 Ocean fleet this year.

For now, strong freight returns continue to outweigh demolition values. Unless shipping markets weaken significantly, GMS says, recyclers may have to wait longer for larger volumes of end-of-life vessels to arrive at their yards.