A bid by a newly formed shipbreaking group seeking to keep demolition prices down in Bangladesh is coming under pressure from cash buyers.
SSY Research, the analysis arm of UK shipbroker Simpson Spence Young, said the group was formed by the Bangladesh Ship Breakers Association last month to curb over-enthusiastic ship recyclers who were paying prices that were not sustainable in the local market.
The group, which some in the market have described as a "cartel", is trying to ensure that there is a cap payable for vessels from both the international market and cash buyers.
GMS, a major cash buyer of ships for demolition, said most local recyclers feel prices are becoming over-inflated once again.
But demolition broker Ed McIlvaney told TradeWinds the sale of one handysize bulker, Karya Sumber Energy's 8,002-ldt KT 06 (built 1994), could be considered as a challenge to the longevity of the Bangladesh cartel.
Limit breached?
The vessel was sold to a cash buyer for delivery into Bangladesh at $370 per ldt, well in excess of the maximum level declared by the cartel, he added.
This cap is rumoured to be $350 per ldt.
McIlvaney added: "It should be noted, however, that the vessel has a November cancelling date. Therefore, one could assume that the cash buyer involved is of the opinion that the cartel will come to an end before the vessel is ready to be delivered."
Two vessels have been identified as committed to the cartel: Liberty Shipping's 3,626-ldt research ship Mahsuri (built 1972) and Karya Sumber Energy's 7,440-ldt bulker Shanthi Indah (built 1996).
The pair were reported sold at $345 per ldt.
September was strong
Singapore-based bulker owner Berge Bulk sold a VLOC for demolition at $375 per ldt last week. The 289,000-dwt Berge Kibo (built 1993) is likely to be scrapped in Pakistan, illustrating the higher prices still available elsewhere.
SSY Research said scrap prices firmed throughout the first half of September to reach the highest level since mid-March, but numbers have since eased again.
"The start of the month was extremely active, with a large number of vessels committed, with a considerable number of other units also workable, despite the majority of the subcontinental yards close to reaching the pre-monsoon workforce numbers," the shipbroker said.
This included a number of sales that had previously been committed and failed, SSY Research added.
"Many negotiations slowed due to the changing scenario in all three of the subcontinental markets, with prices slipping as a result," SSY Research said.
Suitable candidates drying up?
With bulker and boxship rates increasing, the number of demolition candidates are bound to fall, shipbroker Clarksons Platou Hellas said.
Golden Week holidays in China earlier this month also stalled the market.
The broker said: "With the ever-developing Covid-19 situation, working environments are far from normal with the ongoing disruption continuing to lead to a distinct lack of market discussion among stakeholders in the industry."
Clarksons Platou Hellas, the Greece division of UK shipbroking giant Clarksons, added that many players have now come to the realisation that there are very few ships in the market. This looks set to continue until the end of the year, with the firming freight rates diverting owners' attention away from the recycling market, the outfit said.
"One positive note to take on board, however, is that despite global stock markets showing a large amount of volatility due to these uncertain times, local steel markets continue to remain firm and price levels for ships have held strong over the past month in India and Pakistan," the broker added.
Clarksons Platou Hellas believes the Bangladesh cartel is managing to prevent some vessels being resold locally above an agreed threshold.
Resolve to be tested
"It will be interesting to watch how this develops if the market is further starved of tonnage and domestic recyclers become desperate to acquire units," the company said.
Allied Shipbroking said the cartel formed by breakers has limited competition within the country, but ramped up the rivalry with the rest of the Indian subcontinent.
"Demand in the country remained robust, due to attractive offered prices and healthy fundamentals," Allied added.
In India, the ongoing Covid-19 crisis is muting demand from end-buyers. The broker said Indian breakers are viewed as unable to compete with Bangladesh and Pakistan.
"In the case of the latter, the new era that began as of late with very competitive prices seems to still hold durability, as more and more owners are choosing Pakistan for the recycling of their fleet," the broker said.
