Ship demolition prices plummet says Braemar Seascope Research Director

JUNE 22, 2012 —Mark Williams, Research Director of Braemar Seascope, says that demolition prices for elderly ships have fallen by a quarter so far this year and shipowners he encourages shipowners to dispose of recycling candidates sooner rather than later.

Mr. Williams told delegates to the seventh Annual Ship Recycling Conference in Lo
ndon this week that deflating international steel prices were likely to translate into lower offers for recycling tonnage in the coming quarters.

Meanwhile, rapid reductions in the value of the Indian, Pakistani and Bangladeshi currencies against the dollar are causing difficulties for cash buyers and end users struggling to pass on cost increases to their own customers, despite long-term strong recycled steel demand growth prospects in the sub-Continent.

Forex risk for recyclers has been compounded by intermittent limited availability of credit. Buyers’ banks have been challenged by “sight LC’s” – letters of credit that must be honored on sight, which can be hampered by a shortage of hard currency. And cash buyers paying hard currency for recycling candidates are bearing the forex and credit risk of selling in local currency to the recycling facilities.

Falling demolition price assessments, as published by the Baltic Exchange, are likely to influence second hand vessel prices, says Mr. Williams: “For example, it could be argued that over-age oil tankers are now priced off scrap, which will lead to increased numbers of younger ships being sucked into the recycling markets.”

Mr. Williams also presented the hypothesis that spikes in scrapping are driven not only by low freight rates, or high scrapping prices, but by credit crunches.

“Credit crunches coincided with peaks in recycling in 1986 (the year the Biffex bottomed out at 550 points and banks had stopped supporting technically bankrupt owners following the savings and loan crisis), 1998 (the Asian financial crisis which led to an Asia‐wide credit crunch and high scrapping despite relatively low values per LDT) and 2008/09 (the global financial crisis),” he said (see chart below).