Containerships: Scrapping activity declining fast

Jun 19, 2017

The first signs of improvements (at least on the first level of the market analysis), such as the decreasing fleet capacity during the last couple of months, in parallel to the stronger period rates since the end of the first quarter and mainly during the second half of April and first half of May, have had a huge impact on shipowners’ expectations for the market’s short term. As a result, the (even small) optimism developed lately caused the pace of containership scrapping to slow down since the mid of this year’s first quarter, a trend supported by the lower scrap prices which did not push owners to rush in talking any dynamic vessel recycling decisions.

Last month, less than 30 k Teu have been committed for demolition, almost half as much as the market experienced in the first four months of the year on a monthly basis. Due to the less vessels sold for scrap and the limited interest from the shipowners to consider scrapping, we now expect demolitions for the entire year to move much lower than we earlier expected, having reduced our forecast down by a fifth, close to 650 k Teu. However, we expect that scrap prices could start rising later this year, while we’ve already seen the first corrections downwards in charter rates especially for vessels within the 3 – 5.1 k Teu size range.

Demolition will also be boosted later this year and in 2018 after the enforcement on 8th September 2017 of the IMO Ballast Water Management (BWM) convention, which requires owners to retrofit ships with costly ballast water treatment equipment for vessels approaching the deadline of the International Oil Pollution Prevention Certificate after this date, often coinciding with the next classification surveys. The high cost for retrofits to be covered might add pressure to shipowners and make them consider the disposal of several mid-aged classic Panamaxes, above all those that are left idled for rather long.

Source: Fotios Katsoulas, Head of Affinity Research LLP