The ship recycling sector continues to face dismal market conditions, with shipowners facing weak rates and unfavourable contract terms.
Since the end of March, shipowners and cash buyers have not been able to deliver scrap vessels to Bangladesh, India and Pakistan, the world’s main ship breaking nations under lockdown to fight the coronavirus pandemic.
Clarksons Research had reported more owners were looking to sell units based on "as is" terms, letting cash buyers to shoulder the responsibility of delivering vessels to scrapyards.
But the solution has failed to lift sentiment and prompt more transactions, with Clarksons data showing nominal demolition rates recently falling to between $325 and $340 per ldt across the markets – the lowest in three years – amid quiet trading.
Some cash buyers told TradeWinds that they themselves are facing trouble of firming up delivery slots at beaching facilities, whose re-opening dates are up in the air.
Unfavourable terms
According to GMS chief executive Anil Sharma, shipowners ideally should delay selling their vintage vessels and wait for market conditions to improve.
“If someone really wants to sell, we just have to take [the ship] at a significant discount because the risk is ours,” Sharma said.
Yiannis Kourkoulis, Best Oasis’ vice-president of purchase in Greece, said cash buyers would not acquire any vessels unless they are allowed to declare force majeure if scrapyards do not open at a future date.
“This way both parties, despite the peculiarities that this unprecedented situation has provoked, can engage in a firm deal by avoiding any possible conflicts,” Kourkoulis said.
Uncertainty in South Asia
However, even if cash buyers are willing to extend delivery periods in such contracts, shipowners generally would not accept such terms as the deals can easily fall through.
“What I can tell you is that the activity is very low and the end buyers’ appetite even less,” Kourkoulis said.
The lockdown in Indian and Pakistan is scheduled to be lifted on April 14, while Bangladeshi yards have delayed their opening date from 7 April to 12 April.
But market players suggested it remain difficult to predict when the market can resume normal trading, as the three countries may still extend the lockdown periods due to an increasing number of Covid-19 patients.
Assuming no further change to the schedules, Sharma expects the earliest restart date for Indian and Bangladeshi yards to fall on the final week of this month due to tide conditions.
“Doing a deal is one thing. Delivering the ship is another,” Sharma added.
Turkish yards play the saviour’s role?
While still open for business, shipbreakers in Turkey are also experiencing a slowdown in activity.
Having invested in more eco friendly facilities, Turkish yards tend to offer much lower rates than their South Asian peers. According to Best Oasis, the scrap rate for a containership is $205 per ldt in Aliaga.
“Over the last few weeks, their activity has been reduced dramatically as the rest of the industries,” Kourkoulis said.
A local source said Turkish breakers have increased health and safety control measures for workers to counter the pandemic while cancelling meetings with external parties.
“Port control and vessel clearance now includes review of the vessels’ trading history and health screening of the crew. Delays are expected to apply for all operation,” the source said.
“The main issue with maritime operations is related to crew changes, with Turkey having imposed strict controls regarding the entry and transit of foreign nationals.”
