freight rates, very few crude oil tankers have been sent for demolition so far
this year. In a new analysis of market trends, BIMCO reports that it expects
shipowners will continue to seek opportunities in the secondhand market as
opposed to scrapping ships and reducing overall capacity in the second.
Second-hand market is winning out
With a difficult
rate market and few prospects for a near-term recovery, the speculation hard
turned to a possible new wave of scrapping to reduce capacity in the crude oil
tanker segment. Pointing to data from Clarkson, BIMCO acknowledges that
demolitions are up from the start of last year but overall says that the
second-hand market is winning out.
widely disappointing crude oil tanker freight rates at the start of 2021,
owners appear to be in no hurry to reduce the cargo carrying capacity in the
market by selling ships for demolition,” says BIMCO’s Chief Shipping Analyst,
Peter Sand. "The attractiveness of scrap steel prices around USD 450 per
ltd. offered by breaker yard on the Indian sub-continent, easily vanish when
compared to USD 24.5 million being paid for a 2002-built VLCC in the
For demolition to pick up, earnings must remain in the doldrums for an
Sand says that
while the perception is that demolition volumes rise when freight rates fall,
it is not always that simple. Earnings must remain in the doldrums for an
extended period before demolition activity picks up significantly, he explains.
For instance, in Q4
2014 through Q1 2016, tanker freight rates enjoyed high levels on the back of a
sharp decline in oil prices during Q4 2014 to Q1 2015, but when tanker freight
rates started to drop after Q1 2016, it took around five quarters for scrapping
activity to pick up in July 2017.
Part of what is
supporting the market currently is the fact that a lot of money was made before
the most recent decline in rates. The most significant difference that BIMCO
sees in the market currently has to do with demand.
Two opposing future trends
observe two opposing future trends, both of which will steadily impact tanker
trade lanes,” says Sand. “Where non-OECD nations (mainly India, China, and
South East Asia) are rapidly heading towards a pre-pandemic level of oil demand,
OECD nations, on the other hand, are on a very different track as the US is now
joining Europe and Japan on a trend of a decline in the demand for oil.”
also rise in the spring after the end of the winter peak demand for oil. BIMCO
forecasts that the traditional seasonality will not be an issue instead
believing as long as the second-hand market remains strong demolitions will
continue to be deferred.