Weak Rates Prompt Panamax Owners to Commence Scrapping Earlier Than Planned

Friday January 29, 2016

The scrapping of the 74,000 deadweight tonnage (dwt) Panamax dry bulk vessel MV Diamond Seas, which was built only 15 years ago, is being viewed as a rarity for the demolition market and a sign that all Panamax vessels 10 years or older will be demolished earlier than expected, media reports.

The Japanese-made MV Diamond Seas, currently at the west coast Indian port of Hazira, was recently sold in the $260/light displacement ton to $265/LDT range, with about 1,100 metric tons of bunker fuel still on board.

An unnamed source at Lion Shipbrokers who disclosed the news of the sale to Platts said the dry bulk sector's sustained weak rates will result in all Panamax vessels built in 2005 or prior being scrapped "sooner rather than later" – possibly starting six months from now, if the market doesn't improve.

Supporting this prediction is a report from Intermodal shipbrokers, which states, "It seems that disposing of loss generating tonnage even of younger ages becomes more and more popular as an option for those [owners] looking to find a quick way out of the 'scary' market."

Konstantinos Papazoglou, research analyst for Bancosta Research, told Platts that scrapping is a preferable alternative to the $400,000-$500,000 cost facing owners for dry docking their vessels, an expense that isn't recoverable in the current market. 

He went on to note that "We see approximately 41 percent [800 vessels] of the Panamax [65,000-84,999 dwt] trading fleet being over 10 years old [and] expect more and more vessels being scrapped including younger ones, especially if the market continues to be at such levels not even covering operational expenses."

Dry Bulk is not the only sector where vessel scrapping has recently come under the spotlight.

Earlier this month Poten & Partners Inc. noted that based on the profile of the global tanker fleet, there are not enough scrapping candidates to offset new deliveries and quickly support weakening freight rates.