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Wednesday, 17 March 21
MARKET INSIGHT - INTERMODAL
 Shipping market players are familiar with the inverse correlation between the freight market and demolition activity i.e. when the market picks up we usually observe demolition activity declining and vice versa, while the level of scrapping eventually contributes to a new market equilibrium.
In order for demolition activity to be impacted in either direction, market expectations for the medium term have to be aligned with actual freight market conditions and thus demolition activity reacts with some time lag to the current freight market environment. The decision to sell a vessel for scrap is not only driven by the state of the market cycle and expectations, but to a great extent by the offered scrap price at the time vs the price fetched at the 2nd hand market.
As we stand, owners of vintage tonnage are obviously trying to exploit the current sound performance across all Dry Bulk & Container segments and prefer to keep their vessels for further trading rather than turning to beach yards. Despite positive market conditions in these two segments, possible demolition candidates could be those old units that have to be docked for surveys and their Owners are not in favor of bearing this cost, or the parties that are looking for a fleet renewal. Still, in order to make the demolition decision tempting for them, scrap prices should rise further. Already, scrap prices have risen more than 10% since the beginning of the year, and are up more than 29% compared to last year.
So far during Q1 2021, the freight market and expectations in the Dry Bulk & containers segment have been extremely optimistic, whilst the wet market is still to recover from the severe downturn experienced as a result of oil supply cuts and soft demand amid the ongoing COVID-19 pandemic. YTD dry bulk scrapping rate in dwt terms is estimated -21% below the same period last year, while tankers scrapping is estimated +91.1% y-o-y.
However, taking a closer look at the tankers sold for scrap, we would expect that the current market conditions (with VLCC rates suppressed since the beginning of the year and recently turning negative) would favor the larger crude carriers towards scrap yards. Instead, since the beginning of the year, about 11 vessels were confirmed to be scrapped with half of them being Handysize or MR tankers, while the rest consist mainly of Aframax, two shuttle tankers and no VLCCs.
We could argue that maybe owners of the larger crude tankers have enough buffer from last year’s stellar earnings amid floating storage economics skyrocketing and thus can sustain adverse market conditions, but also expect that the market will turn a corner should OPEC+ reverses oil supply cuts in the next months. We could also argue that owners prefer to sell their vessels in the 2nd hand market, as the premium they are currently getting over selling them for scrap is quite substantial.
While scrap prices are expected to rise further during the 2H of the year amid increased demand for scrap restocking, it remains to be seen how all of the above factors will impact demolition activity across the different shipping segments, with expectations for tanker scrapping activity increasing nonetheless coming in higher.
By George Kallianiotis,
Valuation Department
Compiled by:
Intermodal Research & Valuations
Analysts:
Ms Eva Tzima
Mr.George Panagopoulos
Disclaimer and legal disclosure: For any further queries please do not hesitate to contact our Research & Valuations Department. The information contained in this report has been obtained from various sources, as reported in the market. Intermodal Shipbrokers Co. believes such information to be factual and reliable without making guarantees regarding its accuracy or completeness. Whilst every care has been taken in the production of the above review, no liability can be accepted for any loss or damage incurred in any way whatsoever by any person who may seek to rely on the information and views contained in this material. This report is being produced for the internal use of the intended recipients only and no reproducing is allowed, without the prior written authorization of Intermodal Shipbrokers Co.
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Wednesday, 28 July 21
IN THE PHILIPPINES, COAL’S DEMISE MAKES WAY FOR A RENEWABLE ENERGY BOOM - IEEFA
Imported gas lock-in could undermine the economic benefits of a clean energy transition
The Philippines’ energy sector is on t ...
Wednesday, 28 July 21
MARKET INSIGHT - INTERMODAL
Assessing the ship repair sector during this first half of the year, we continue to come across surprises and new restrictions which are trembling ...
Saturday, 24 July 21
UNDERSTANDING INDIA'S LATEST PEAK POWER DEMAND RECORD - IEEFA
Ramping up solar will be crucial as peak power demand hits during the day
At around noon on 7 July 2021, India’s instantaneous ...
Wednesday, 21 July 21
MARKET INSIGHT - INTERMODAL
Dry Buk Sales and Purchase activity has heated up during 2021, reaching record high levels during the first half of the year. The increased interes ...
Monday, 19 July 21
CHINA'S COAL OUTPUT UP 6.4 PCT IN H1 - XINHUA
China’s raw coal output climbed 6.4 percent year on year to 1.95 billion tonnes in the first six months of the year, official data showed.
...
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