Falling steel prices reveal glut of demolitions to come

The declining price of steel prices are a barometer for the rise in demolitions in the container shipping sector according to Braemar, the London-based shipbroker.

Given that scrapping prices were at a high in March 2022, at US$685ldt, as vessels delivered for demolition fell to a measly four ships in the year, prices have taken a plunge as the scrappage rate has accelerated in 2023 with demolitions expected to continue to increase into 2024 and 2025.

Current prices paid by scrapyards are US$553/ldt, said Braemar, but the broker added: [From reviewing steel futures quotes, we would estimate that demo prices may drop towards US$544/ldt in Q3 2023, US$530/ldt in Q4 2023 and potentially drop below US$500/ldt sometime in Q1 2024."

Demolition prices are set to fall as the increase in new vessel deliveries is set to rise to extraordinary levels, with carriers such as Maersk and MSC already phasing out older tonnage in preparation for the arrival of new, bigger, replacements.

Up to 11 August this year, Braemar said 57 ships totalling 110,000 TEU had been scrapped, while in the same period last year, just four ships of 2,750 TEU had been decommissioned., with Braemar estimating a total of 105 ships, a combined 207,000 TEU, is expected to be sent for scrapping by the year`s end.

Braemar told Container News that the number of ships scrapped so far this year was [A lot lower than expected." But with 210 vessels set to be delivered in the second half of this year, up from 126 in the first half of 2023, and another 381 deliveries expected next year, in a slowing market, the expectation by demolition yards is that business is expected to be brisk.

In its evaluation of the container shipping market, Braemar estimates that some 160 ships annually will be scrapped annually over the course of 2024 and 2025 as new ships come online.

In particular, the broker expects vessels in the size range of 5,100 TEU to 7,500 TEU, with 145 of these vessels, amounting to 880,000 TEU, over 20 years old, will be replaced by a raft of deliveries in the 12,000 TEU to 16,000 TEU range.

In addition, the smaller, traditional panamax ships from 4,000 TEU up to 5,100 TEU has more than 80 ships, 367,000 teu, over 20 years old and apparently approaching the scrapping age and another 60 ships in this category will reach that age next year.

With JP Morgan`s manufacturing index in neutral territory for China`s output, while the global outlook had softened in the first half of this year the expectation is that both charter and freight rates will suffer as the glut of new vessels enter the market.