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Scrap prices should rise in order to attract more tonnage says shipbroker

An underwhelming demolition market has been the norm so far this year, despite expectations that a lackluster freight market, mainly for tankers, could increase tonnage sold for scrap. However, this hasn’t been the case so far, not to mention that owners of bulkers and containers prefer to keep them in the market, due to improved freight rates. Scrapyards have already hiked prices offered for tonnage, by 10 percent since the start of the year, with shipbrokers expecting this to increase even further. In its latest weekly report, shipbroker Intermodal said that “shipping market players are familiar with the inverse correlation between the freight market and demolition activity i.e. when the market picks up we usually observe demolition activity declining and vice versa, while the level of scrapping eventually contributes to a new market equilibrium”.

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Scrubber-fitted ships nearly double as fuel spread settles at $118 per MT

As the lion’s share of the world fleet replaced high-sulphur fuel oil (HSFO) with low-sulphur fuel oil (LFSO) as a mean of propulsion to be compliant with the IMO 2020 global sulphur cap which came into force on 1 January 2020, overall bunker sales rose in the world’s by far largest bunkering hub: Singapore.

Total bunker sale volumes grew by 5 percent in 2020 and have continued to climb in the first two months of 2021 (+2.7 percent y/y). An indication of the shipping industry’s ability to deliver all the way through the pandemic. One quarter of total bunker sales in February 2021 was HSFO, a share that has only risen since January 2020, when no more than 17 percent of sales were fuel oil for ships with a scrubber installed.

Ship owners turn to S&P market for more tonnage

Dry bulk tonnage is a “hot commodity” right now, as ship owners are opting to add more tonnage in their fleet, in anticipation of improved market fundamentals moving forward. In its latest weekly report, shipbroker Allied Shipbroking said that “a moderate activity was witnessed in the newbuilding market this past week. In the dry bulk sector, the positive sentiment that dominates the market, supported by the rising freight earnings, has boosted buying interest. This past week we noted a very intense appetite for Capesizes, but given the high cost and the inflexibility of this size units, we do not expect activity to be retained at these levels. Ultramaxes and Kamsarmaxes are expected to preserve their position of the most preferred newbuilding option within this sector. Despite the encouraging conditions, the rising momentum of newbuilding prices is likely to curb some interest moving forward, while the feel of increasing prices has likely also driven some interest at this point, with many fearing of missing the current low prices. On the tanker side, the current fundamentals are pointing in the opposite direction, as minimal demand growth has led to historical low freight earnings and hurt sentiment amongst owners and potential buyers.

China’s one-sided recovery drives iron ore market back up

In the first two months of 2021, Brazilian iron ore exports have risen by 9.1 percent to 53.0m tonnes, driven by China. So far this year, 35.2m tonnes of iron ore has been exported to China, representing a 15.2 percent increase from the same period last year and standing in contrast to slightly declining exports to all other countries: down 1.2 percent to 17.8m tonnes, continuing the trend from 2020. Despite the strong growth rates in the first months of this year, total exports of iron ore have failed to recover to 2019 levels following the 21.8 percent drop in volumes in 2020. Total volumes in January and February this year are down by 9.1m tonnes compared with 2019 levels. Looking only at exports to China, these have come much closer to matching their 2019 level, but are still down by 0.6m tonnes.

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Lack of tonnage hinders scrapping activity

Alack of available tonnage has proven to be a hindrance when it comes to increasing ship recycling activity. In its latest weekly report, shipbroker Clarkson Platou Hellas said that “after the recently impressive price indications witnessed, it is surprising to report that the market remains starved of tonnage with the market feeling like it had taken a step back once again. The particularly strong numbers being offered are still in the high 400’s and it is anyone’s guess what it will take for Owners to fully consider the recycling destination. One explanation for the reluctant number of tankers units this year (despite the earlier prediction of many such wet units to be recycled this year), is due to the majority of the overaged larger tankers being acquired by buyers well excess of the current recycling price levels, with the vessels being sold to Buyers for alternative trades, effectively removing these vessels from the international market pool the same way as recycling would do.

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