BIMCO: Oil product tanker demolition on track to break 11-year record

In the first four months of 2021, the amount of oil product tanker capacity that has been sent for demolition has already reached the total amount of demolished capacity in 2019 and 2020 respectively due to unfavorable freight rates.

If that pace continues for the rest of the year, an 11-year record is set to be broken, according to BIMCO.

It would then amount to 2.1% of the active oil product tanker fleet.

So far this year, 10 crude oil and 38 oil product tankers have left the active trading fleet and the development in crude oil tanker demolition and that of oil product tankers continues to head in different directions..

Crude oil cargo carrying capacity of just 1.45 million DWT has left the
market since the start of the year compared to 1.25 million DWT of oil product tankers.

For the crude oil tanker sector to reach that level, 10 million DWT will have to be broken up.

The pick-up of demolition comes after the initial two months saw a total of just 11 oil tankers being sold for demolition, while March and April both had oil tanker capacity of 1 million DWT being retired.

The rise in demolition sales of oil product tankers is noteworthy although it comes from a very low base, whereas the amount of demolished crude oil tanker capacity fails to impress.

“Oil tanker owners made a lot of money during the boom-periods of 2019 and 2020. No one is short on cash and find themselves actively seeking asset liquidations,” says Peter Sand, BIMCO’s Chief Shipping Analyst.

“Just as every crisis holds recognisable elements from the previous one – they are never the same. Every one of them contains something unique. This time around it seems to be demolition of oil product tankers that stand out.”

Despite the pick-up in demolition for crude oil tankers in March and April too, the sheer level – when compared to the size of the fleet – is much lower than that of oil product tankers.

Currently, 2021 volumes sit at 60% of what was demolished in 2020 (2.4 million DWT). With low earnings in the spot market most likely to stick around for longer than anyone hopes for, demolished crude oil tanker capacity during 2021 will no doubt exceed that of 2020 and 2019 (2.2 million DWT), BIMCO estimates.

But it is unlikely to reach the 18.5 million DWT that faced the blowtorch in 2018 as earnings were multi-decade low.

“If the spot market continues to bleed for another year with no real improvement in earnings, demolition will accelerate in 2022. Having said that, any dead-cat bounce which only temporarily eases the pain will limit demolition activity as die-hard optimism starts to re-emerge and inevitable slows demolition interest,” Sand says.

Finally, the devil is in the detail, as some may say crude oil tanker demolition volumes are somewhat higher than what is included in the above chart. But for the freight market, what matters is only the actively trading VLCCs, and not the Floating Storage Offloading units or other structures permanent deployed in different ways.

The average tanker demolition steel price paid in Bangladesh reached an all-time high on 7 May 2021 of $520 per LDT (Light Displacement Tonnage). With reports of much higher as well as significantly lower scrap steel prices agreed too for ‘demo-ready’ tankers.

As explained, a tanker which has stainless steel tanks onboard, like ‘Laris’ 13,843 DWT (ex-name TMS Polaris), may be priced at $ 845 per LDT when Sold to a bullish buyer in India (source: GMS).

Demolition prices are often very ship specific, depending on the steel content and quality as well as the condition of it and the – ‘as-is’ location of the sale.

Due to the rising cases of COVID–19 in India, as well as other main ship breaking nations such as Pakistan and Bangladesh, crews for ‘as is’ sales from these countries have been restricted from many ports world-wide. This makes crew change even more difficult that it already is.

The lack of scrap metal has pushed the demolition prices higher across the board. Nevertheless, no owner sells a ship because of high demolition prices, but for prolonged poor freight markets and low second-hand values.

Still, receiving $ 21 million for a 22-year-old VLCC that was purchased for $ 70 million must bolster the books somewhat, as the asset is fully depreciated.