Marine Link
Monday, December 17, 2018

Capsize Scrapping: It's Complicated!

Maritime Activity Reports, Inc.

July 10, 2016

Graph: ALIBRA Shipping

Graph: ALIBRA Shipping

 Last year saw an upswing in Capesize spot rates during the first seven months of the year, peaking in early August, rallying briefly in September and declining for the rest of the year, says ALIBRA Shipping  in its Weekly Market Report.

This would seem to correspond with scrapping activity – owners sold many capes for demolition during the first half of the year but stopped scrapping as rates rebounded – which ultimately killed the market again. 
Since 2016 began, some 64 Capesize bulk carriers have been sold for demolition, compared to 66 during the same period last year – almost identical. Does this mean we can expect to see the same trend in rates again this year?
Of course, demolition is only half of the story. In 2015, only 55 new Capesizes (10,999,600 dwt in total) were delivered between January 1 and July 8.
During the same interval this year, however, 104 Capesizes have hit the water (20,100,627 dwt in total), some of which will be vessels that were originally scheduled for delivery in 2015.
This is equivalent to net fleet growth of 2.6% since January 1.
As an interesting aside, new software has shown how sensitively Capesize freight rates respond when vessels are removed from the trading fleet., with whom Alibra partners and provides charter rate data, is developing software that estimates how many Capesizes are currently in lay-up worldwide.
The draft software estimated that 37 Capesize bulk carriers (6.6m dwt in total) were laid up around the world, as of June 5. This number is equivalent to 2.4% of the 1,521 Capesizes currently on the water.
Most interestingly, MarineTraffic has found the number of laidup Capesizes identified by its software roughly tracks the trend shown by the Baltic Dry Index (BDI) week-by-week.
The highest level of Capesize lay-ups was shown during the week commencing April 18 (week 16) this year. The BDI hit an eight-month high of 715 points just a few days later, on April 27.
An estimated 30m dwt in Capesize tonnage will have to be scrapped during 2016 and 2017 in order to offset the same volume of tonnage awaiting delivery and create a “floor” for freight rates.
Research says this would result in the average age of a cape sold for demolition from the current 21 years to just 18 years.
This is pretty drastic – in shortening the cash flow period, early scrapping cuts future earnings and vessel values. Is the cape market really so bad that shipowners would opt for such drastic measures?
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