Dry Bulk Scrapping Rises

According to Braemar, 2011 is already a record year for dry bulk carrier demolition. In Jan-May 2011, 13.6m Dwt of bulkers have been scrapped, including 7.1m Dwt of Capesize (over 120k Dwt) bulkers. If scrapping continues at this pace for the balance of 2011, it could reach 32.6m Dwt, more than three times the previous record set in 2009.
 
Demolition has previously peaked in years of credit crunches: In 2009, 11.7m Dwt of bulkers were scrapped following the global credit crunch. Scrapping was high even though prices per LDT were down on average for the year to around USD 260 compared to an average of around $370 in 2007. In 1998, 11.2m Dwt of bulkers were scrapped following the Asian financial crisis. Scrapping was high even though prices per LDT were only around $140, having fallen from $180 in 1997.

High prices for scrap steel have undoubtedly encouraged scrapping – in some cases, Capesize bulkers have been sold for scrap for over $10 million this year.  Average Capesize daily earnings in 2010 to date, based on Baltic Exchange data, have been around $8,300. At that rate, it would take over three years to earn the $10 million achievable for scrapping a ship.  Banks may be reluctant to extend credit facilities to cover SS/DD costs when earnings are so meagre, further encouraging owners to scrap ships approaching dry docking dates.

The current rate of demolition might offer a ray of hope in the freight markets, but this year deliveries are already outweighing scrapping by almost three to one. In Jan-May, 36.3m Dwt of bulkers delivered, including 20.5m Dwt of bulkers over 85k Dwt. If deliveries continue at this rate for the balance of 2011, they will total over 87m Dwt for the year. 

For ships over 85k Dwt, fleet growth in Jan-May 2011 has been 6%. Panamax fleet (60-85k Dwt and Panamax beam) growth has been 2%. Combined Supramax and Handymax fleet growth has been 6%.  Handysize growth has been only 2%, but within that fleet the small handy (below 25k Dwt) segment has shrunk by 4%. Annualized bulk carrier fleet growth based on Jan-May deliveries and demolition will be in the order of 55m Dwt or 10%. 

Mark Williams, Braemar Research Manager, concluded, “These levels of demolition are very encouraging. Deliveries are also likely to run behind schedule this year. Nonetheless, oversupply will still be on the agenda in January 2012.”