Shipbreaking revival forecast for 2018 in light of low freight rates

Disappointing freight rates are likely to tempt shipowners to scrap a ‘record number’ of big oil tankers this year, the Wall Street Journal has reported. This development is already boosting recycling at South Asian shipbreaking yards.

Very large crude carriers (VLCCs) represent the majority of maritime transport – of mostly oil. The fact is, however, that there are far too many circling the oceans in a steadily shrinking market. The overcapacity is promising news for the shipbreaking industry in India, Pakistan and Bangladesh, which pay around US$ 20 million for each vessel ready for scrapping.

Interestingly, China’s government recently decided that the country will stop the import of end-of-life ships for scrapping. Even so, the NGO Shipbreaking Platform has declared that the 21 EU-based yards have enough capacity to recycle the entire EU-flagged fleet.

Great year for scrapping

The shipbreaking industry is worth up to US$ 5 billion a year, according to Anil Sharma, chief executive of U.S.- and Dubai-based GMS, the biggest cash buyer of ships headed for scrap. ‘We expect 1 billion dollars’ worth of VLCCs to be recycled this year. It’s one of our best years overall,’ he comments.

Some 50 VLCCs are up for recycling this year. This is a notable surge from the 15 vessels dismantled last year, GMS data points out. Spot freight rates for those ships are hovering below US$ 6000 a day, according to brokers, in a business where US$25 000 is generally considered a break-even rate.

20% too big

Furthermore, industry sources confirm that the current global fleet of 720 VLCCs is approximately 20% bigger than needed to serve oil markets. It is believed that it won’t be until 2020 for VLCC supply to match demand, provided there are no orders for new ships.

It is argued that a recovery in the secondary commodities market is making the hulls of tankers more valuable. For instance, figures from industry tracker VesselsValue indicate average scrap prices were at around US$ 425 per ton of steel in the last week of June, up from less than US$ 300 per ton in 2016.