Poor bulker markets have pushed owners to scrap 20 Capesize bulkers so far this year against 8 in 2019, year to date data from VesselsValue shows.
In total, only 27 units were scrapped throughout 2019 which means that 2020 has already reached over two-thirds of this number in the first quarter of the year.
The deteriorating rate environment is primarily driven by the pressure on Brazil’s iron ore exports, annual cyclone season in West Australia and finally a major drop in Chinese imports amid the outbreak of coronavirus.
Recently, it has been announced that Japan’s largest iron ore importer, Nippon Steel, will be dramatically reducing their steel production. This reduction in Japanese iron ore demand could have further downward effects on the market.
Furthermore, the regulatory framework is also creating an incentive for more demolitions as capital expenditures to make older ships compliant with new regulations exceed the return on investment.
The scrapping trend is expected to reduce fleet growth, possibly resulting in improved markets once ton-mile demand bounces back.
According to VesselsValue’s estimates, 15% of the Capsize fleet is currently not underway, which is a good indicator of fleet utilization. This is almost double the 2019 daily average of 8.5% of the fleet not underway, signaling the challenging state of the Capsize market.
“The Capesize market is heavily reliant on Chinese demand for iron ore. This is down significantly due to the economic effects of coronavirus. The result has been falling Capesize cargo miles, vessel utilization and earnings. We hope that the effects are short-lived and expect a bounce back, and possibly a positive catch up overcorrection once normality resumes,” VesselsValue said.
“Japanese demand reduction is a further downside risk, while the increase in vessel recycling is positive for the market.”