Dry-bulk vessel scrapping set to rise

Source: The Star

SCRAPPING of aging ships that carry coal, iron ore and other commodities may rise because of an increase in new vessel deliveries starting this year.

Only eight dry-bulk ships were scrapped globally last year while 88 new vessels were delivered, resulting in a 2.6% increase to 3,164 ships across the world, Precious Shipping managing director Khalid Hashim said in a filing to the Thai stock exchange

Precious Shipping is Thailand's biggest sea transportation company by market value.

The Baltic Dry Index, an overall measure of commodity shipping costs, rose to a record in November and more than doubled to 7,070 points last year from 2006.

The strength in bulk-shipping rates has discouraged shipping lines from scrapping aging vessels.

“It is impossible to escape the conclusion that for the most part, the ever greater age of more and more ships will lead to an upswing in deletion rates in the near future, regardless of the profitability of the underlying markets,'' he said.

For cape-size ships with 175,000 tonnes cargo capacity, Hashim said 13% of the supply would be more than 22 years old and were likely to be scrapped during 2008 to 2011 should freight rates reached low enough levels.

A total of 47 new cape-sizes are scheduled for delivery this year, 139 in 2009 and 263 in 2010.

He said a total of 436 panamax-size vessels of 70,000 tonnes capacity each were contracted for delivery from 2008 through 2010.

“About 228 ships will be over 24 years by 2011 and may be scrapped between 2008 and 2011,” he said.

He added that some 1,141 smaller handy-size ships would exceed 27 years old by 2011 and would be likely be removed for demolition this year through 2011 should freight rates drop sharply.

About 332 new handy-size vessels will be delivered between 2008 and 2010. Handy-size ships can each carry 10,000 to 39,999 tonnes of cargo.

“Precious Shipping will need to sell or scrap 26 of its ships, which are more than 20 years old, over the next five to seven years,” said Hashim.

The Bangkok-based shipping company has 44 ships and has contracted to acquire 18 new ones from ABG Shipyard Ltd, India's biggest shipbuilder.

“We will continue to be on the lookout for the right opportunities for additional fleet renewal as we would like to achieve an annual fleet strength of between 50 and 70 ships within the next few years,'' he said.

He said Precious Shipping had obtained credit facility from a group of local and international banks amounting to US$500mil, which it can use to purchase second-hand vessels. – Bloomberg