In 2017 so far, as some sectors have begun to move away from the bottom of the shipping market cycle, demolition levels have declined year-on-year. However, with a range of factors at play, many believe recycling volumes are likely to remain at elevated levels in the medium term. This month’s Shipbuilding Focus takes a look at how recent demolition trends have panned out across the key sectors.
From 2007 to 2009, annual demolition increased five-fold in tonnage terms to 33.3m dwt, against a backdrop of sharply declining earnings. Recycling activity has remained elevated since, reaching 58.4m dwt in 2012, the highest annual level on record. In the year to date, 743 vessels of a combined 32.7m dwt have been sold for scrap. In tonnage terms, demolition volumes have declined year-on-year by 20% on an annualised basis, from a firm total of 44.5m dwt in 2016, despite an increase in scrap prices. This reflects an improvement in market sentiment, with some sectors beginning to move away from the bottom of the cycle.
Bulkcarriers have been a key driver of overall demolition trends in recent years, accounting for 52% of the total in dwt terms since the start of 2009. In 2012, 590 bulkers of a combined 33.4m dwt were sold for scrap, the largest annual total on record. Recycling levels have declined following an extremely strong 1H 2016, when 22.6m dwt was sold for scrap, compared to 211 units of a combined 14.1m dwt in 2017 so far. This represents a 50% year-on-year decline in dwt terms, against a backdrop of improving bulkcarrier earnings.
A New Leader Of The Pack?
Meanwhile, annual demolition in the tanker sector peaked at 13.1m dwt in 2010. Recycling volumes then declined to pre-2008 levels in 2015 and 2016, averaging 2.5m dwt per year as earnings improved significantly. However, due to a weaker earnings environment in 2017 so far, demolition has since picked up, increasing four-fold year-on-year to stand at 95 vessels of 9.5m dwt in the year to date.
King Of The Mountains?
Containership demolition in 2016 reached 194 vessels of a combined 0.7m TEU, the largest annual volume on record in capacity terms, driven in part by continued weak boxship earnings. In TEU terms, 46% of containerships recycled last year were ‘old Panamax’ vessels, rendered less competitive following the opening of the expanded Panama Canal locks in June 2016. Recycling levels in the sector have declined year-on-year by 35% in TEU terms to 137 units of a combined 0.4m TEU in the year to date, but remain historically high.
So, global demolition volumes have generally declined year-on-year, driven primarily by the bulkcarrier and containership sectors. However, scrapping activity remains at historically elevated levels, and the costs of complying with upcoming environmental regulation are likely to sustain this trend in the medium term. This could continue to drive supply side rebalancing, potentially helping shipping markets to transition into the next stage of the cycle.