The last two months saw only two large tankers sold for scrapping. A firmer freight market helped, but falling local demand for scrap steel is keeping elderly tankers at sea
The spike in VLCC freight rates that has lifted values for secondhand tonnage in the tanker sector is also partly to blame for the lack of scrapping in September and October. Only two large tankers have been sold for scrap in that period. With freight rates at firm levels owners and operators are hanging onto older tonnage. This is an important factor, but the main issue is underlying demand for ship-based scrap metal in the Indian subcontinent.
At the start of 2019, scrap prices were in excess of US$400/ldt in most Indian subcontinent locations, according to cash buyer GMS. Expectations were high that this would continue throughout the year and beat the levels achieved in 2018. There is potential for a steady supply of large tankers for scrapping due to owners deciding it is too costly to comply with IMO 2020, the Ballast Water Management Convention and the next special survey. Several large tankers were sold mid-year in advance of the scrapping yards closing down in the monsoon season.
Unfortunately, demand in the domestic scrap metal markets, and hence demand for large tankers for recycling declined. According to GMS, current scrap prices are US$100/ldt less than the price paid for tankers purchased for scrap pre-monsoon and these are likely to be scrapped at a loss.
The two large tankers sold during September and October 2019 are 1994-built 147,500-dwt, 22,257-ldt Suezmax tanker Ankleshaw. This former Shipping Corporation of India vessel was constructed by Samsung and was reported as sold in early September for US$368/ldt (US$8.19M).
One month later 1994-built 22,520-ldt Navarino was sold for US$408/ldt (US$9.2M) for dismantling in India. This was one of the last Suezmax tankers to be constructed at Harland and Wolff in Belfast, UK.
Ironically, Harland & Wolff is one of the yards on the EU’s list of ship recycling facilities compliant with European Regulation on Ship Recycling. From 31 December 2018, EU-flagged ships being sent for scrapping need an Inventory of Hazardous Materials, to be surveyed, certificated and recycled in yards listed in the European List of approved yards. In theory, 22,520 ldt Navarino could have been recycled at Harland & Wolff completing a virtuous end-of-life process.
Owners will require an increase in scrapping prices to let go of tankers that have paid off capital costs. Should there be another tanker spike, these elderly tankers could return extraordinary profits.
The demolition market may even see the literal return of tankers sold for scrapping re-appearing in the market, a situation not seen for decade or more.
CTI Marine Services and Riviera Maritime Media are jointly hosting a webinar on the Inventory of Hazardous Materials, detailing what every vessel operator needs to know and do by 2020, on Tuesday 10 December 2019 at 9:30am GMT. To register for the webinar please visit the booking page.
The outlook of the tanker markets is one of the topics under discussion at the Tanker Shipping & Trade Conference, Exhibition and Awards to be held in London in November.