Tanker demolition rate slows in August

The number of tankers sent for scrapping in August fell on the month, but remained well above monthly averages for the past two years, as low freight rates continue to prompt tanker owners to scrap their older vessels.

In total, 11 tankers were scrapped in August, down from 14 in July and 13 in June, according to data compiled by Argus. So far this year, 83 tankers have been sent for demolition. The scrapping rate remains higher than in 2020 and 2019, when three and four tankers, respectively, were demolished every month on average.

Demand for crude and product shipments has remained slow during the summer, as it has done throughout the year, weighing on freight rates. This has incentivised more scrapping by shipowners.

On one of the bellwether very large crude carrier (VLCC) routes from the Mideast Gulf to Asia Pacific, the cost of freight averaged just $6.23/t in August, the sixth lowest monthly average ever since Argus began assessing the route in 2005. And so far this year, freight rates on the route have averaged $6.38/t, which, if rates continue to be depressed, will be the lowest yearly average since Argus began assessing the route, compared with the next lowest in 2017 at $8.17/t.

The main scrapping yards in Bangladesh, Pakistan and India, will operate at a reduced capacity during the monsoon season in south Asia, which could curtail actual demolitions in the coming months. But if demand for tankers remains weaker in the rest of the year, tanker scrapping is likely to continue at pace.

Tanker owner Frontline said recently that the reduced number of newbuild tanker orders, coupled with limited newbuilding capacity in the coming years, made for a more "constructive" tanker market outlook. More ship scrapping, along with fewer new orders, should limit tanker supply in the markets, supporting rates, he said.

By Saleem Rizvi