The ship recycling market could move from a prolonged shortage of end-of-life tonnage to a capacity crunch if geopolitical disruption eases and a larger flow of vessels comes forward for demolition, according to Wirana Shipping.
Hitesh Vyas, VP Middle East & green recycling co-ordinator at Wirana, told Seatrade Maritime News that recycling markets currently remain tight, with limited supply across vessel segments keeping competition high among buyers and yards.
As shipping markets are elevated, the economic balance for older vessels has tipped towards keeping them in operation. Even older LNG steam turbine vessels, previously seen as prime recycling candidates earlier in the year due to their commercial shortcomings compared to more efficient tonnage, have largely disappeared from the demolition market as their employment prospects improved.
The shortage of available tonnage has pushed cash buyers and recycling yards into competition for those ships being offered. “When there are few ships coming out, everybody wants them, and it starts with the buyers trying to outbid each other, then they try to push that higher price product to the ship breakers”, said Vyas.
Prices will likely be pressured substantially downwards should the war in Iran come to an end and international sanctions on Iran be unwound, he added, but if only the Red Sea route becomes risk free it will take time for ships to reach the recycling market. The two-month negotiating period contained in the US-Iran MoU will likely be followed by owners waiting another couple of months to be confident that routes in the Red Sea and Gulf are safe, said Vyas, pushing the arrival of new scrapping candidates into next year.
Diversions around the Cape of Good Hope currently support around 10% of shipping capacity, and a return to the more direct Red Sea route for Asia-Europe container services is expected to bring a wave of containership recycling.
“Newbuilding deliveries have been happening in the container market and were supposed to result in recycling candidates coming out last year, but they have all been absorbed by diversions”, said Vyas.
Nobody benefits from a lot of vessels hitting the market at the same time, said Vyas, but fortunately for owners, buyers, and yards alike, the flow of ships to the breakers should be gradual “Owners have made money this time, so they are not in a liquidity tightness where they cannot hold the vessel even for a short time.” With cash on hand, shipowners will be able to hold off and time their sales, bringing a more systematic influx of tonnage rather than a rush to dispose of assets.