Demolition of dry bulk ships in the first four months of 2019 was 120% higher than in the same period of 2018. Much of this increase comes from demolitions of Capesize ships, up from 1.1m DWT between January and April 2018 to reach 3.4m DWT in the first four months of 2019.
Despite the increasing in scrapping, the bulk carrier market, particularly on the large ship side, will remain under pressure for a number of reasons, starting with stagnant demand, from the short term shock and impact of the dam collapse in Brazil and bad weather in Australia, and longer term concerns centered on falling Chinese iron ore demand.
The 18 Capesize ships demolished this year, sailed away from the poor market conditions faced by these larger vessel sizes since January 25, 2019. In the almost three months since then, Capesize earnings have remained below $9,000 per day, falling to a low-point $3,460 per day on April 2, 2019.
Capesize earnings have averaged $8,079 per day since the start of the year, a loss making level with BIMCO estimating that a Capesize ship needs to earn around $15,300 per day to be able to cover daily costs.
“Due to the falling demand for commodities traditionally carried by Capesize ships, limiting fleet growth will become even more important if freight rates are to be profitable,” says Peter Sand, BIMCO’s Chief Shipping Analyst.
“For that reason, rates of demolition of Capesize ships in 2019 and 2020 are essential to addressing the fragility of the market balance,” he says.
Although demolitions are up from last year, in the first four months of 2019, the Capesize fleet grew due to the delivery of five Valemax (380,000 – 400,000 DWT), six VLOCs (200,000 – 350,000 DWT), a standard Capesize (140,000 – 190,000 DWT ) and a baby Capesize ship (100,000 – 130,000 DWT), amounting to 3.8m DWT entering the already crowded market.
There is more bad news to come for the market on the delivery side through 2021, with an additional six Valemax, 46 VLOCs, 17 standard Capsizes, and 2 baby Capes slated to be delivered in 2019. A mammoth 24.8m DWT (3 Valemax, 79 VLOCs, 20 standard Capsizes and 8 baby Capes) has been ordered to be delivered in 2020, and deliveries of 8m DWT in 2021 has already been ordered.
While scrapping activity may perk up in the face of new fuel rules from IMO entering force in January 2020 and ballast water management system installation demand, Sand concludes that the market for large dry bulk ships is likely to face continued pressure as there is little potential for substantial growth on the demand side.
