Ship recycling activity has dropped by nearly 14% this year, according to data from Xclusiv Shipbrokers. Surprisingly, this decline has occurred despite relatively stable prices in Southeast Asia. In their latest report, Xclusiv Shipbrokers noted that while the demolition market’s prices in countries like India, Pakistan, and Bangladesh have decreased by 7%, 10%, and 2%, respectively, Turkey has seen a significant increase of around 30%. However, the overall volume of ship demolitions has significantly decreased compared to previous years. As of August 18, 2023, only 129 Tankers, Bulk carriers, Container, and Gas vessels have been sent for scrapping, a nearly 14% decline compared to the same period in 2022. This marks the lowest number of demolitions in at least the past five years.
Although there has been an increase in the number of Bulk carriers and Container vessels being sold for recycling, the Tanker market is experiencing its lowest scrap volume since at least 2018. The rise in Container and Bulk carrier demolitions aligns with a decrease in freight rates in both markets, which has prompted ship owners to scrap their older vessels.
Specifically, this year has seen the scrapping of 55 Bulk Carrier vessels with an average age of 30 years, nearly double the number compared to the same period in 2022. The Panamax and Handymax segments have been driving the Bulk carrier demolition activity, with 13 Panamax and 19 Handymax vessels scrapped since the beginning of 2023. These two segments account for approximately 24% and 35% of total Bulk carrier demolitions, respectively.
Supramax and Handysize routes have seen a significant decline in average earnings compared to a year ago, with both experiencing nearly a 50% drop. Panamax routes have also seen a 12% year-on-year decrease. In contrast, the average earnings for Capesize routes have increased by 84% year-on-year, resulting in only five vessels being sent for scrapping, which is 9% of total Bulk carrier demolitions.
The majority of dry bulk ships have been scrapped in Bangladesh, accounting for almost 80% of total Bulk carrier sales. In the Container market, 41 vessels with an average age of 29 years have been scrapped, a significant increase compared to the same period in 2022 when only two Container vessels were demolished. Most Container ships have been scrapped in India, making up 44% of total Container demolitions, followed by Bangladesh at around 37%.
On the other hand, the tanker market has seen high freight rates due to Russia’s invasion of Ukraine and Western sanctions, coupled with a low orderbook, which has kept aging tankers in service. Since the beginning of the year, 21 tankers with an average age of 32 years have been sold for recycling, with the majority being products and Small/Chemical tankers. This is a decrease compared to the 113 tankers scrapped during the same period in 2022. Interestingly, as of August 18, 2023, no Panamax/LR1, Aframax/LR2, Suezmax, or VLCC vessels have been sent for recycling. Only four MR2’s and two MR1’s have been scrapped.
In the Gas market, demolition sales have remained at similar levels compared to the previous year. From January to August 18, 2023, a total of 12 gas carrier vessels have been scrapped, with an average age of 34 years. This compares to nine gas carrier vessels demolished during the same period in 2022.
Xclusiv Shipbrokers concluded by expressing optimism about the reopening of the Pakistan demolition market, thanks to financial support from China and the IMF. Cash Buyers and Gadani Recyclers have relaxed L/Cs and payment issues, and the shortage of scrap, combined with improving domestic market sentiment, may lead to increased ship recycling activity in Pakistan. It’s worth noting that recyclers in Bangladesh have refrained from offering on ships greater than 8-9,000 LDT since late July 2023 due to difficulties in securing support from banks for opening new L/Cs, which poses another challenge for the demolition market.