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Falling demolition prices may
encourage ship recycling sooner rather than later, says analyst
Demolition prices for elderly
ships have fallen by a quarter in 2012 to date, and owners are encouraged to
dispose of recycling candidates sooner rather than later, says Mr Mark Williams
of Braemar Seascope.
Addressing the 7th Annual Ship
Recycling Conference in London last week, the Braemar Seascope Research Director
told delegates that deflating international steel prices were likely to
translate into lower offers for recycling tonnage in the coming quarters.
Meanwhile, rapid reductions in
the value of the Indian, Pakistani and Bangla-deshi currencies against the US
dollar are causing difficulties for cash buyers and end users struggling to pass
on cost increases to their customers, despite long-term strong recycled steel
demand growth prospects in the Subcontinent.
Forex risk for recyclers has been
compounded by intermittent limited availability of credit. Buyers’ banks have
been challenged by "sight LCs"—letters of credit that must be
honoured on sight, which can be hampered by a shortage of hard currency.
Meanwhile, cash buyers paying
hard currency for recycling candidates are bearing the forex and credit risk of
selling in local currency to the recycling facilities.
Falling demolition price
assessments, as published by the Baltic Exchange, are likely to influence
second-hand vessel prices, says Mr Williams. "For example, it could be
argued that overage oil tankers are now priced off scrap, which will lead to
increased numbers of younger ships being sucked into the recycling
markets."
Mr Williams also presented the
hypothesis that spikes in scrapping are driven not only by low freight rates, or
high
scrapping prices, but by credit crunches. "Credit crunches coincided with
peaks in recycling in 1986 (the year the Biffex bottomed out at 550 points and
banks stopped supporting technically bankrupt owners following the savings and
loan crisis), 1998 (the Asian financial crisis which led to an Asia-wide credit
crunch and high scrapping despite relatively low values per LDT) and 2008-09
(the global financial crisis)," which is clearly depicted in the given
chart.
Source : Exim
News Service - LONDON, June 26
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