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Ship Recycling Market Jitters with Influx of Tonnage

Ship Recycling Market Jitters with Influx of Tonnage

Ship Recycling Market Jitters with Influx of Tonnage

The ship recycling industry is experiencing a shift as freight markets face their first signs of trouble in 2024. According to a recent report by GMS, a growing number of ships are being proposed for sale to scrapyards. This trend is evident in the sudden increase in ship arrivals at shipbreaking yards in India and Bangladesh. Pakistan, which usually sees a strong domestic shipbreaking presence, is falling behind in arrivals this week. This could potentially push India ahead of Pakistan in the global ship recycling rankings.

However, there’s a catch. While there’s an increase in available ships and deals being struck between sellers and shipbreaking yards in the Indian subcontinent, there’s a mismatch between seller expectations and market realities. Here’s why:

  • Limited Ready Buyers: Although there are some shipbreaking yards with the financial resources (Letters of Credit) to buy ships, they are selective.
  • Poor Condition Ships: Many of the ships being offered are in subpar condition, with significant wear and tear.
  • Discounted Prices: As a result, these ships are not only selling for lower prices reflecting their condition, but some are fetching even less than expected. Shipbreakers are becoming increasingly picky with the “aged corrosion” they’re encountering.

This situation has created a standoff. Ship owners and cash buyers (who often buy ships and then resell them to scrapyards) are eager to make deals, but shipbreakers are hesitant.

Adding to the complexity:

  • Currency Fluctuations: After weakening last week, currencies in major shipbreaking nations like India are strengthening.
  • Steel Plate Prices: Steel plate prices in India, a key product from recycled ships, are fluctuating. This creates uncertainty for shipbreakers as their profit margins depend on these prices.

These factors are leading shipbreakers to be cautious about buying ships at inflated prices, especially as the monsoon season (traditionally a slower period for ship recycling) approaches. The only exception might be ships carrying a significant amount of fuel, which can be a valuable additional revenue stream.

The first four months of 2024 have been unusual. Despite strong freight markets and ongoing geopolitical events that have kept older ships profitable, there haven’t been as many ships sent for recycling as is typical for this time of year. This has created a shortage of desirable ships for shipbreakers.

Finally, there’s a glimmer of hope for Turkish shipyards. After a period of inactivity, they are starting to see some interest in smaller container and general cargo ships.

This has led to a standoff between eager cash buyers, ship owners, and cautious ship recyclers. Interestingly, while recycling currencies were weak last week, they’ve started to strengthen this week. Indian steel prices, which influence ship recycling, are fluctuating as more ships become available for recycling.

Ship recyclers in the sub-continent seem reluctant to buy ships at higher prices than what the market fundamentals suggest. This suggests that sales above $600 per light ton (LT) are unlikely, especially with the quieter monsoon months approaching, unless there’s a ship with a lot of fuel to sweeten the deal.

In the first four months of the year, there have been very few ship recycling deals despite strong freight sectors and ongoing geopolitical events. Vintage ships are still profitable due to continued employment, which means fewer ships are being sent for recycling. Turkey, although still quiet, is starting to see more discussions at the bidding tables for smaller ships and general cargo units.

Overall, the ship recycling market remains in a similar state as last week. High-priced sales are rare, and potential buyers are waiting for the “perfect” ship to become available.

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