Whilst a collection of credit market actors have marched unsuspectingly into their Isandhlwala the Baltic Dry Index cruises on, unperturbed, to the record 7,000 level. This is China (mainly) at work, of course: and shippers are in part coping by holding back vessels that, through age, would be destined for the breakers in less buoyant times.

The scale of the veteran vessel build up is this: for each of the next four years 25 million dead-weight tons (dwt) of old steel hits the 25 year old mark, the age generally regarded as the useful life of a vessel. That 100m dwt is in addition to 80m dwt of vessels already aged between 25 and 29 years old. Thus a total of around 180m dwt is due in at the knacker’s yard by 2010.

To put this in context, in each of the last three years breakers have scrapped only 10.6m, 5.7m and 6.6m dwt. Scrap yards, seriously struggling for work through scarcity, will have a boat-load coming their way shortly. If freight rates hold, it will be an orderly feast. If they don’t it will be a riotous one.

Before rushing off to buy into ship-breakers there is something else to consider. It is a largely unregulated industry mostly in the hands of family firms; it is fiendishly difficult to make profits on due to the diverse products extracted and sold into quite different markets; there is no pricing power; and it is ever more political given the environmental pollution it generates. Once dominated by the US and Europe, then the Far East, since the late 1980s it is now India, Pakistan and Bangladesh who rule the roost (such as it is).

That trend speaks to the importance of labour costs over the technical expertise required to dispose of ship pollution safely. However, ‘responsible disposal’ is an ever-hotter topic with NGOs, sovereign governments, industry associations and even the subsidy-toting EU becoming involved. The latest (July) result of the blather is a set of International Maritime Organisation interim ship recycling guidelines, a development that probably, should it grow teeth, will promote and benefit new waste/breaking business alliances.

The prime example of this it that established by three Suez subsidiaries (waste disposal, industrial dismantling, metal salvaging) which last September won a contract to dismantle a French frigate. It wants to do the same to the Clemenceau aircraft carrier, star of the tug of war between France, India and Greenpeace over the last several years.

With the vast tonnage hitting its shelf life and strong environmental (and increasingly so) political momentum expect more such groupings – and maybe go so far as to consider their investments merits.

Usual disclaimers.

Sources: Clarksons Shipping Intelligence; McQuilling Services; International Maritime Organisation Library Services

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  1. Anonymous // 8/03/2007 05:51:00 PM

    Nice one. Do keep us posted.


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