Low scrappage rates weighing on tanker markets: sources
13th July 2020 12:03 GMT

 While demolition rates remain low in the tanker market, sustained newbuild deliveries is putting further pressure on spot freight market in the second half of 2020.

Sustained newbuild deliveries is expected to put further pressure on the spot tanker market in the second half of 2020 while demolition rates remain low, market sources say.

Scrappage rates in the tanker market have fallen in recent months because of the closure of yards on the Indian subcontinent, record high freight rates, and floating storage bookings, which caused owners to reconsider scrapping their older tonnage.

The West Africa-to-Far East route on VLCCs was assessed at $16.75/mt on July 10, according to data from S&P Global Platts, or month-on-month decrease of $4.50. "Earlier in the year, rates peaked amid overproduction and floating storage, and were assessed at $75.64/mt on the same route on March 16.



Scrappage rates plunge


Year-to-date, only three crude tankers have been scrapped, with a combined deadweight of 290,000 mt, according to data from S&P Global Platts Analytics. Average, annual deadweight scrapped for crude tankers was 847,000 mt over 2010-19 across VLCCs, Suezmaxes, Aframaxes and Panamaxes.

There are signs that the scrap price is recovering in the tanker demolition market, with prices inching up to $300-$350/lightweight mt in Pakistan, and below $300/lightweight mt in India, according to data from Charles R. Weber Research. Five weeks ago the rate was $280/lightweight mt. However, scrap prices remained considerably lower than in previous years, and only an estimated 16 more ships were likely to be scrapped, according to S&P Global Platts Analytics.

"Most of the older tonnage is now doing floating storage for a long period, and will only be sent for scrap thereafter," a broker said.

Comparatively, more than 100 to be delivered throughout 2020, which will translated in spot freight rates coming under further pressure on structural oversupply and low demand for oil.

“We’ve got less demand and a bigger fleet overall, so there is a bigger gap between the two, and that should put down structure in freight rates,” EA Gibson Shipbrokers Director Richard Matthews said in a webinar on July 9.



Candidates for scrapping to increase in 2021-22


At the start of 2020, around a hundred tankers aged above 15 years old had International Oil Pollution Prevention certificates expiring, making them candidates for scrapping were they not to retrofit expensive ballast water management systems, according to data from EA Gibson. Since September 2017, the Ballast Water Management Convention mandates that ships built before September 8, 2017, be in possession of an IOPP survey to postpone the installation of a Ballast Water Management System.

While scrappage rates are predicted to increase as most IOPP certificates will expire over 2021-22, freight rates will remain low because of weak oil demand in 2020, which might cause owners to decide scrapping their vessels and help support the market on the long term, Matthews added.


Bunkerworld .,
13th July 2020 12:03 GMT

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14th July 2020
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