Higher scrap prices encourage oil tanker demolitions

Surging scrap prices on the back of a global shortage of steel products are improving the economics for shipowners to remove aging oil tankers from the oversupplied market and sell them for scrap.

Higher containerised shred import prices in south Asia are supported by firm demand and tight supply. The price of shredded containerized ferrous scrap cfr Bangladesh was at $495/t on 8 January, up by 54pc from a year earlier, according to Argus assessments.

Already this year, a shipowner sold the VLCC Merlion M, built in 1999, for scrap with delivery in Malaysia at $427/light displacement (LDT), according to Affinity, a shipbroker. Oil tankers typically retire from the market at around 20 years, the age at which major chartering firms stop booking them.

A key scrapping location, Bangladesh, is the strongest market, with levels quickly approaching the $500/t mark, with a specialised LNG carrier already surpassing this level, according to a report by SSY Research.

Tanker demolition prices for the second week of 2021 in Bangladesh are at $470/t, up by 24pc from the second week of 2020, according to an Affinity Shipping report. Prices in India are up by 13pc at $440/t, and in Pakistan they are up by 22pc at $450/t in the same period.

Scrapping was curtailed last year by the closure of recycling facilities on the Indian subcontinent for some months in the first and second quarters of 2020 following the Covid-19 outbreak and subsequent lockdowns in India and Pakistan. Scrapping last year in the crude segment was minimal as 11 ships of 1.37mn dwt left the fleet, the lowest volume in number and dwt since 2016, according to SSY Research.

Domestic markets in four major recycling hubs for demolishing tankers, Bangladesh, India, Pakistan and Turkey, could see an uptick in vessels for scrapping, according to SSY and Affinity reports.

China may also receive vessels for scrapping as it may rescind its ban on acquiring foreign flagged vessels, which would add capacity to the demolition market, according to SSY.

In addition to rising scrap prices, depressed voyage earnings are also incentivizing shipowners to consider scrapping their older tankers. The demand continues to drop for VLCCs out of the Mideast Gulf and the rate for shipments to Asia-Pacific has declined to $6.44/t on January 15, down by 69pc from a year earlier, per Argus assessments.

By Liz Ramanand

Mideast Gulf-Asia Pacific VLCC rates $/t

Ferrous shred scrap price cfr Bangladesh $/t