The EU SRR remains a contentious topic, with significant loopholes rendering it somewhat redundant at present
The European Regulation on Ship Recycling (EU SRR), introduced on 1 January 2019, requires that shipowners based in the EU only sell their vessels for recycling to an agreed list of approved yards, as determined by the European Commission.
The aim of this policy is to force European owners to recycle ships in Europe and not export waste to other countries. While the legislation has been widely criticised as impractical, this rather ignores the progress made by yards in South East Asia to meet the similar criteria of IMO’s Hong Kong Convention.
There are loopholes in the EU SRR, including that it does not apply to a non-EU flagged ship departing on a voyage to a recycling yard from a non-EU port, or where the decision to send the ship for recycling is taken when the ship is in international waters.
According to VesselsValue 10 tankers have been sold for recycling in the first two months of 2019, which is currently around half the rate of sales that took place in 2018.
At least five of those tankers have connections with owners that would be regarded as EU-based, either coming directly from the fleet of a European operator, or having been in an European fleet but registered to a non-EU single purpose company. While the European owners have, in theory, done nothing wrong, their actions are under scrutiny by the authorities and anti-beach scrapping NGOs.
One argument against scrapping tankers in Europe is that there are few recycling yards capable of accommodating vessels of such size; however, all but one of the recent tankers sold for recycling could be classed as small enough to be accommodated by one of the EU-approved recycling yards.
“Ironically, the one tanker that has been sold for recycling in Turkey does not appear to have a direct EU relationship”
But the main arguments against scrapping in Europe are a lack of demand for steel scrap from ships, coupled with environmental concerns. Essentially, there is very little demand or desire to undertake such work in Europe. It is notable that dry bulk operator Grieg Star of Norway choose to scrap the open hatch dry bulk carrier Star Gran at the Leyal Ship Recycling Group yard in Turkey. The reported demolition price of US$250/ldt is far below the US$425/ldt that could have been realised through a sale to an Indian subcontinent scrap yard, indicating a sacrifice of US$1.6M to adhere to green recycling principles.
Grieg Star Shipping has put its money where its mouth is, taking a financial hit by adhering to its green recycling principles: Elizabeth Grieg (left) and Camilla Grieg
Ironically, the one tanker that has been sold for recycling in Turkey does not appear to have a direct EU relationship, having been operated by a Congo-based company.
According to VesselsValue, there are 71 tankers of 10,000 dwt or larger that are over the age of 27 years (the current average age of tankers sold for scrap in the first two months of 2019), with dry dockings due in 2019. The expense of a dry docking is usually the trigger point for the sale of an elderly tanker for recycling. This makes this subset of tankers potential scrapping candidates. None of these 71 tankers are larger than MR1 size – well within the size limitations of EU scrap yards – and 16 tankers, or just about a quarter, are currently operated by European owners. It will be interesting to see how many of these are sold for recycling in Europe under the principles of EU SRR.
A flood of deliveries
The first two months of 2019 saw a flood of tanker deliveries compared to the same period in 2018. Over 90 vessels entered the fleet, compared to 64 in January and February 2018. According to Clarkson Research Services, these new deliveries have increased the overall capacity of the 10,000 dwt-plus tanker fleet by 1.8% since the start of the year.
Greek owners received half the deliveries in the VLCC sector, most going to the Angelicoussis family-controlled Maran Tankers (Houston Voyager, Pascagoula Voyager and San Ramon Voyager) and the Onassis-controlled company Olympic Shipping and Trading (Olympic Laurel and Olympic Lyra).
A slew of tankers for the account of China’s Bank of Communications (12 of the 15 delivered) dominated the Suezmax sector. The 12 tankers are pre-fixed “Marlin” and were delivered from Hyundai Heavy, Hyundai Samho and New Times Shipbuilding. The Suezmax dirty dozen (crude oil) are part of a sale and lease back deal with commodity trader, Trafigura. It is believed that three of the new Suezmax deliveries to Trafigura have been involved in multiple clean product voyages, loading cargoes from refineries in the East and performing multi-drops around Europe and beyond, before returning back East.
This poaching of product tanker trades by large uncoated newbuildings is not a new phenomenon, but the capacity of a trader like Trafigura, with so many new tankers on offer and access to deep-level trading/arbitrage opportunities, elevates this activity to a new level compared to the actions of more traditional owner/brokers. Trafigura is expecting to receive three more Suezmax in March and April.
A slowdown in contracting
According to Clarkson Research, tanker contracting is currently 48% weaker than at the same point in 2018. Excluding options, there appears to have been nine firm orders for VLCCs placed in the first two months of 2019. Only three of these appear to be with a Greek owner; the rest are with companies associated with state enterprises in China and South Korea. The momentum appears to be coming from the shipyards, with newbuilding prices moving upwards toward the US$93M, nearly US$10M higher than two years ago.
In the Suezmax sector, a Greek owner has placed contracts for three vessels and Valles Steamship is reported to have placed a firm contract for one Aframax at US$50M with Sumitomo.
Hyundai Mipo scooped up a dozen firm MR2 contacts in the first two months of 2019 for a range accounts and prices. Central Mare of Greece is reported to have contracted four MR2 tankers for US$38M apiece, as has Meiji Shipping of Japan. Sinokor of South Korea is reported to have paid US$41M for its MR2 tankers from Hyundai Mipo, but the exact specification is not known.