Shipowners on Tempo to Scrap $1 Billion in Oil Tankers This Yr

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ATHENS—Dire freight charges are pushing shipowners to scrap a document variety of the most important oil tankers this yr, making it a bumper interval for recycling yards in South Asia.

Very giant crude carriers, or VLCCs, transfer a lot of the world’s oil throughout the oceans. However there are far too many in operation in a shrinking market. Main oil producing nations have curbed manufacturing in recent times and the U.S. is importing much less crude because it more and more covers its wants with native oil.

The overcapacity is nice enterprise for ship-breaking yards in India, Pakistan and Bangladesh, which pay as a lot as $20 million for every VLCC despatched to be taken aside for scrap. The industry is price as much as $5 billion a yr, and tankers are amongst its high earners.

“We count on $1 billion price of VLCCs to be recycled this yr,” stated

Anil Sharma,

chief govt of U.S.- and Dubai-based GMS, the most important money purchaser of ships headed for scrap. “It’s one among our greatest years general.”

Business executives say the present international fleet of 720 VLCCs is about 20% larger than wanted to serve oil markets and that it’s going to take till 2020 for VLCC provide to match demand, offered there are not any orders for brand spanking new ships.

Some 50 VLCCs are up for recycling this yr, up from 15 in 2017, in line with GMS information. Spot freight charges for these ships are hovering under $6,000 a day, in line with brokers, in a enterprise the place $25,000 is mostly thought-about a break-even charge.

Greek house owners, who’ve a few of the largest VLCC fleets, say if freight charges don’t get well subsequent yr, smaller gamers will exit of enterprise or be swallowed up by larger friends. One proprietor with round 20 VLCCs stated scrapping is predicted to hurry up except there are clear indicators of restoration, “which is unlikely.”

“This yr has been appalling for VLCC house owners, to say the least,” stated

Peter Sand,

chief delivery analyst for Bimco, an affiliation of shipping-industry executives. “There’s been vital fleet progress whereas demand is low, and it doesn’t seem like it’s going to get higher till 2020, so that you scrap to chop the bleeding.”

A restoration in commodities markets, together with the worth of scrap metals, is making the hulls of tankers extra useful, altering the monetary calculations for ship operators. Information from industry tracker VesselsValue present common scrap costs at round $425 per metric ton of metal within the final week of June, up from lower than $300 per metric ton in 2016.

Some 1,000 vessels are damaged up yearly and their metal and different metals are melted or just stacked up and bought to factories. The yards within the Indian subcontinent recycle round 80% of all ships, with the rest going to China and Turkey, though Beijing has stated it can droop scrapping beginning subsequent yr.

The common age of VLCCs going to scrap this yr is 18.eight years, the youngest since 2013, in line with VesselsValue. A ship’s common operational age is round 25 years, however after 15 years within the water, the vessel has to undergo an in depth survey to find out whether it is seaworthy. “A median survey prices about $2 million, and it’s a must to do it once more at 20 years, so quite a few house owners choose to scrap as an alternative,” Mr. Sharma stated.

The oil glut can be sending offshore rigs to scrapyards. It’s a comparatively new enterprise that has boomed over the previous 5 years, as the price of drilling at sea is way increased than inland exploration. Not less than 18 rigs have been damaged up up to now this yr, in contrast with 46 final yr, in line with GMS.

Write to Costas Paris at costas.paris@wsj.com

Appeared within the July 9, 2018, print version as ‘Shipowners Scrap Oil Tankers.’



Supply hyperlink – https://www.wsj.com/articles/shipowners-on-pace-to-scrap-1-billion-in-oil-tankers-this-year-1531054800?mod=pls_whats_news_us_business_f

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