Psychology can play odd games with human nature.
Back in July 2021, demolition players were rejoicing about “mythical” and “previously unthinkable” scrap prices of $600 per ldt.
One year later, the same price levels fail to excite owners, said Anil Sharma, head of Global Marketing Systems (GMS) — the world’s biggest cash buyer of ships.
“There are very few ships in the market today,” he told TradeWinds in an interview in Athens on 10 June, the final day of Posidonia. “Even though $600 per ldt is still a fantastic rate, it’s not the $700 per ldt people got used to.”
Meeting dozens of shipowners and brokers in the “busiest” Posidonia he saw in the 20 years he has been attending the event, Sharma said several players were weighing their scrapping options.
But with almost all types of ships earning profits, most owners are hesitant to move.
“They [owners] are watching, they’re listening but they’re also looking at freight markets,” Sharma said. “They say, ‘do we press the button now, or do we delay it?’.
“[Their message is…] ‘we delay it for now. There’s another decision to make today’.”
Sharma said owners may eventually warm to current price levels.
“My belief is that once a few deals start benchmarking at a lower price in the $600 bandwidth, some even may be lower, then owners will start accepting it.”
The founder and chief executive of GMS expects VLCC owners to be the first to move.
“VLCCs are the only segment I know of right now that is suffering, it cries pain,” he said.
Some VLCC owners are still holding out in the expectation that trade rerouting in the wake of Russia sanctions will make even such ships profitable, as Greece’s George Procopiou put it during Posidonia on 6 June.
However, Sharma said others are tired of losing money on the freight market while missing out on record scrap prices of $700 per ldt.
Too volatile to understand
Little demolition appetite on the part of owners is not the only factor affecting the market.
“It’s strange ... there’s a lack of supply but there’s also simultaneously a relatively smaller demand appetite as well,” he said.
According to the head of GMS, some demolition yards in the Indian subcontinent have priced themselves out of the market while others, more conservative ones, are sitting on the sidelines.
“Some yards say this market is too volatile for them to understand,” he said.
Turkish yards have slowed down as well, even though rising bunker prices make them more attractive for ships that can save fuel costs by avoiding the longer trip to the Indian subcontinent.
With sanctions against Russia likely to increase the pool of so-called “grey ships”, matters become even more complicated for demolition players.
“We see those vessels coming to India, Pakistan and Bangladesh but we just don’t touch them,” said Sharma, who sees them offered at “significant discounts [of] at least 20% to 30%”.
‘Recycling is green’
Sanctions are not the only pitfall the industry faces.
Negative media coverage and legal proceedings in Europe against shipowners beaching ships in the Indian subcontinent are causing deep uncertainty.
Sharma cited one Scandinavian owner as telling him that selling a ship for recycling was “the worst news” anyone could give him.
“‘It petrifies me, I’m so scared either I’m going to break some law or… that I’ll be hanged in the media’,” Sharma cited the unidentified owner as saying.
In the latest such incident, German media reported on 25 May that prosecutors in Kiel were looking into the demolition sale of a container ship by a Hamburg-based shipping company.
Talking about such cases in Europe in general, Sharma said he considered them “far-fetched”, especially since they are generally probing incidents that happened several years ago, “when there was a general sense of a lack of awareness [of] recycling regulations”.
“More importantly, the regulations that existed did not include ships, until the NGOs pushed prosecutors and policymakers to consider a ship going for recycling as waste,” Sharma said.
“The real story is that recycling is green and a critical part of shipping and the global economy.”
