Alphaliner recently downgraded its projection for containership demolitions this year after an improvement in charter hire rates coincided with a dip in steel scrap prices.

The combination encouraged some shipowners to defer some vessel recycling, it said. Hitherto scrapping was on track to pass last year’s all-time record of 650,000 teu.

However the situation may change yet again.

So far this year, Alphaliner has recorded 92 containerships, for a capacity of 280,260 teu, sold for scrap.

However, it expects a pickup in scrapping in the coming months, as evidence increasingly suggests that the recent recovery in the charter market as “already reversing” after a surge in the second quarter associated with the transition requirements of the new alliances.

Indeed, Alphaliner reported that charter rates had “nosedived” for tonnage over 5,500 teu, and that the rest of the market was “following an uninspiring course” as a consequence of “uneven demand across most vessel types and sizes”.

According to its data, currently there are 37 panamax vessels of 4,000-5,000 teu unemployed, 25 anchored in cold lay-up, either awaiting a sustained improvement in charter rates or for scrap prices to become more attractive.

Daily hire rates for panamax vessels touched a sub-economic rock bottom of mid-$4,000 at the end of 2016, but had recovered to around $10,000 per day by April , before softening recently to about $8,500 as alliance-driven demand evaporated.

This still potentially enables shipowners that acquired panamax vessels at distressed prices to produce a return; but for the owners that paid top dollar, $8,500 a day is unlikely to cover operating costs, resulting in these vessels likely to become demolition candidates.

Alphaliner also noted that scrapping could receive a further boost from the IMO’s Ballast Water Management Convention on 8 September. Ships will be required to “manage their ballast water to remove, render harmless, or avoid the uptake or discharge of aquatic organisms and pathogens within ballast water”.

Owners of older vessels will need to pay for an expensive retrofit, installing ballast water treatment systems (BWTS) in order to pass classification surveys.

Technical advances are said to be supporting lower prices, but reports of BWTS estimates seen by The Loadstar have ranged from $500,000 to $3m, depending on ship size.

In its recent casualty review, insurer and risk consultant Allianz Global Corporate & Speciality expressed concern that the new ballast rules “could have a significant impact” on already financially stressed shipowners.

Indeed, in the absence of a new surge in demand and a resulting sustained hike in daily hire rates, the cost of installing a ballast water system could be the tipping point for containership owners to “wave the white flag” and consign their vessels to the scrapyard.


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