Precious Shipping head calls for increased dry bulk scrapping

November 11, 2016

Unless dry bulk operators step up ship scrapping in the fourth quarter, their oversupplied and struggling shipping sector will start 2017 badly, predicts Khalid Hashim, managing director of Precious Shipping.

Commenting on the scrapping levels reported during the third quarter, Hashim said the 3.24 million dwt demolished was “a truly disappointing number” that followed a slowdown in the scrapping rate in the second quarter.

“As a result of the slowdown in scrapping, quarter over quarter, there has been a positive increase in the net supply side of the equation of 1.77%, or 13.88 million dwt, in the first nine months of this year as against an expected negative fleet growth forecast based on first-quarter scrapping numbers,” he told IHS Fairplay.

Hashim said new orders were hovering near zero levels with all existing orders being delayed by financial pressure on the buyers or shipyards.

“All of this has helped reduce the pressure from the supply side of the equation, but if scrapping doesn’t pick up in the fourth quarter, we think that you may see the market dipping back sharply in first quarter of 2017 due to the January impact on the supply side, when more ships are delivered in this one month than any other month in the year, and the expected slowdown in demand due to the approaching Chinese New Year.”

International shipping association BIMCO said most of the scrapping this year took place during the first four months of the year, with 21.8 million dwt deletions, almost double the tonnage scrapped in the following five months.

“The poor global economic situation, as well as the depressing outlook for most of the seaborne shipping sector caused by excess supply of capacity, needs to be countered by a drastic increase in demolishing activity in order to lower merchant fleet growth,” said Peter Sand, BIMCO chief shipping analyst.

Hashim said for the dry bulk shipping sector, 2016 has not proceeded as planned. “Things have not gone as well as one had expected on the supply side. The forecast for the year was for a flat-to-negative growth rate for the world fleet, i.e. scrapping would be equal to or slightly greater than the expected new supply for the year, based on the record 14.09 million dwt scrapping in first quarter.

“Scrapping in second quarter at 8.65 million dwt was good, but a much slower rate compared with the first quarter. However, the third quarter at 3.24 million dwt is a truly disappointing number.”
The Precious Shipping executive outlined the current state of the dry bulk shipping in terms of available capacity and vessels scheduled for delivery.

He said the fleet 2016 started with 771.90 million dwt and increased to 785.78 million dwt by the end of third quarter for a 1.77% net fleet growth. A further 4.8% (36.94 million dwt) is scheduled for delivery in the balance of 2016 and another 4.92% (37.99 million dwt) in 2017.

Hashim said if a slippage factor of 55% (it was 46.03% in 2015) was applied to the scheduled deliveries, and if it was assumed that scrapping would reach 34.7 million dwt per annum (annualised from the 25.98 million dwt scrapped until the third quarter of 2016), the industry would be left with a net fleet growth of 2.82% to 793.68 million dwt in 2016, and it would decline by 1.07% to 785.22 million dwt in 2017.