For the first time in years, the number of cellular container ships sold for demolition in the first half of 2022 has dropped to zero, as recycling sales continue to run at record lows, according to Alphaliner.
High-paying charter and charter markets, which have prompted non-operational vessel owners and liner operators alike to continue trading their older vessels and steer clear of the recycling scene despite attractive demolition prices, they are the main cause of this scrapping drought.
The demolition misery seen in the first half of 2022 is a consequence of already particularly low recycling figures recorded in 2021, when only nineteen vessels with a total capacity of 16,500 TEUs reached the breaking beaches.
Recycling sales in 2021 were down sharply from the 194,500 TEUs scrapped in 2020 and well below the 417,000 TEUs and 655,000 TEUs recycled in 2017 and 2016, respectively.
Alphaliner expects container ship demolition sales to remain particularly low in the second half of 2022, with current estimates of 30,000 TEUs for the full year likely to be substantially lower by year-end, and possibly even lower than the 16,500 TEUs recycled. in 2021.
Trading is more profitable than scrapping
The main reasons for the lack of demolition sales are the continuing bubbling charter and charter markets where ship owners and line operators can make windfall profits by trading in their ships, particularly older, debt-free units.
With historically high charter and cargo rates throughout the semester, owners have had little incentive to sell their ships for recycling, despite high demolition prices. The latter, which have ranged from US$600 to US$700 per light displacement ton (ldt) in the Indian subcontinent and US$300 to US$450 per ldt in Turkey, have been particularly strong, but not good enough to convince owners to scrap the tonnage.
Alphaliner believes shipowners will continue to ignore the demolition scene in the coming months as persistent tonnage shortages, which could extend into late 2022 or early 2023, continue to support sky-high trading profits.
More demolitions are expected from 2023
However, Alphaliner anticipates that overcapacity risks will resurface in 2023, with a staggering 2.3M teu of newbuild capacity coming to market. The impact to owners and carriers could start to be felt more strongly from the second half of the year, leading to a pick-up in demolition sales, which could reach 250,000 TEUs for the full year, Alphaliner forecasts.
Recycling sales are expected to increase further in 2024 as a further 2.8 M teu of new build capacity will come to market. Alphaliner anticipates that 350,000 TEUs of older container tonnage could then catch fire.
However, these term scrapping figures could be conservative. The pressure of excess capacity and the detrimental impact of the new IMO 2023 regulation on the least efficient ships could see a significant part of the current cellular fleet, in particular the units of 20 to 25 years (806 units in total) and the most ancient. becoming serious candidates for scrapping in the next two years, especially in case of moderate demand.
Demolition prices fall but remain strong
Although demolition prices remain at some of the highest levels seen in the past decade, they have weakened significantly of late. In the Indian subcontinent, prices have fallen from a high of US$700 per ldt in March to around US$600 in early July. In Turkey, prices have plummeted from $470 per ldt in April to just $270 this week. It is paradoxical that prices continue to fall despite the lack of candidates for container ship demolition. However, factors such as currency fluctuations and the demand for steel have also influenced the variation in demolition prices. In Bangladesh, demand for steel from recycled ships has been negatively affected by cheaper steel imports from China. This unexpected development, believed to be temporary, has accelerated the price decline, prompting Bangladeshi shipbreakers to stop selling scrap to local steel mills.
Going forward, the container ship demolition market is expected to remain extremely quiet, with owners and liner operators preferring to continue trading their older ships in a highly remunerated market. Meanwhile, the monsoon season will help keep industry subdued, with a pick-up in activity not expected until October at best.