Supertankers dodge demolition as owners sell secondhand

[COPENHAGEN] The scrapping of oil supertankers is slow-going - despite several factors that would seem to prompt owners to send aging vessels to the wrecking yard.

Just three active Very Large Crude Carriers were sold for demolition in the first seven months of 2021, according to shipping-industry group BIMCO. That's the same number as last year - when traders scrambled to book tankers to store oil during the pandemic-induced glut - and one less than in 2019, when shipping rates spiked to the highest level in years.

But this year is different. Benchmark shipping rates have plunged to the lowest since March as the coronavirus continues to cloud the outlook for crude oil demand. Earlier this year, steel inputs iron ore and scrap rose to multi-year highs, exchange data show. Steel prices offered in the world's top ship-scrapping locales - Bangladesh, India and Pakistan - have soared, according to BIMCO.

There are two main reasons why owners aren't looking to slash supertanker capacity, according to Peter Sand, the group's chief shipping analyst.

"Firstly, the strong earnings enjoyed by everyone in the crude oil tanker shipping sector last year leaves no owner short of cash," he said in a statement.

"Secondly, as secondhand prices exceed even the record-high prices offered for demolition steel, shipowners are more inclined to keep their tankers afloat and changing hands, rather than sending them to the demolition yards," he added.

At least 69 supertankers have changed hands during January through July this year, compared with 91 for the whole of 2020, BIMCO said, citing consultant VesselsValue. That's an average of almost ten deals per month, compared with seven last year.

Five retired supertankers have been sent to the scrapyard this year, compared with one last year, according to BIMCO. However, because they aren't actively trading, their demolition doesn't affect freight rates.

Shipbroker Simpson Spence Young said in its mid-year outlook this week that scrapping levels this year have been below expectations, due to secondhand sales of older vessels. The company noted that scrap prices climbing to a 13-year high could still prompt more more removals in 2021.

BLOOMBERG