A steep decline in demand as a consequence of the Covid-19 crisis and the faltering charter market has sparked an interest in the scrapping of larger container ships, as expectations that the stagnant demolition market will start to move soon.
An indication of the shift in scrapping interest came with the news that, Greek owner Costamare is in discussion to sell its 7,403TEU boxship Kokura for scrap. If the company closes the deal, Kokura will be the largest container vessel ever sent for demolition.
A Costamare spokesperson told Container News that there is nothing official at the moment, as the sale of Kokura is not yet completed. Although some reports suggest that the Liberian-flagged ship has fetched price of around US$330/ldt, Costamare officials insist that there is no official agreement for the sale of Kokura.
There is no rush to scrap post-Panamax ships, according to a container market analyst at shipbroker Braemar, but “enquiry for larger ships to be sold for demo does seem to be gathering pace.”
This development comes at a time when the outlook for the demolition market is starting to improve. “Pakistan is edging closer to a full reopening and Bangladesh has now started to see some recycling take place with the prospect of more being allowed going forward,” the shipbroker analyst told Container News.
“Indian local steel prices have also increased on the back of a ban for scrap steel exports from the UAE, which if sustained, will bode well for the Indian ship scrapping market. The announcement of a government stimulus package has also buoyed sentiment for now,” he added.
Improving prices on the Indian Subcontinent and the real possibility of being able to deliver vessels have expectedly started to bring more shipowners to the table, with a notable increase in vessels coming to the market and now negotiating, according to the analyst.
The Covid-19 crisis has created an unprecedented demand shock for the industry in 2020, weakening the charter market. The Braemar expert expects this to continue throughout 2020 and as a result more container tonnage to be marketed for demolition.
“Charter rates for 5,500TEU ships have fallen from US$20,000/day in January to US$11,000 – 12,000 today, so that will pique demolition interest for owners and operators with inactive tonnage,” he explained.
However, asked by Container News, Costamare said that the potential sale of 1997-built Kokura is not part of a “larger vessel demolition” strategy. The US-listed company highlighted it follows a case-by-case strategy, checking each vessel separately.
Container ship demolition prices have recorded a three-year low, while it is expected they will remain weak in the short-term.
At the same time, the demolition market remains at very low levels, as Braemar’s estimation says that only 14 boxships have been demolished in 2020, while during the same period in 2019, 58 vessels were demolished.
“Once the demolition markets begin to re-open, we do expect a flurry of vintage container ships to be sold for demolition,” concluded the market analyst, who also pointed out that a spike in demolition sales in the third and the fourth quarters could be on the way, as the India monsoon approaches end of June to September.
Image Source: VesselFinder