A sharp decline in dry cargo ship freight rates in the first quarter sent more giant ships to scrapyards in Southeast Asia in the first three months of the year.
But analysts expect a slow recovery in Chinese imports of commodities such as iron ore will likely boost demand and put the brakes on recycling later this year.
Ship-broker BTIG said in a report that 107,000 deadweight metric tons of ship steel were recycled in the first three months of this year, up 35 percent from 78,000 metric tons in the same period a year ago. Of 23 vessels scrapped, 16 were capesize vessels, the biggest cargo ships that move products such as iron, aluminum, coal and cement from mines in Australia and Latin America to China.
Shipowners generally step up scrapping when the cost of operating vessels or idling and maintaining them outweighs the price of scrap metal.
Vale S.A.’s mine-waste dam disaster in Brazil in January curbed iron ore production, idling a number of capes, brokers in London and Singapore said. The situation was exacerbated by a seasonal lull in Chinese industrial output during the long Lunar New Year holidays in February.
Capes now command daily freight rates of around $9,000, well below the average $25,000 needed to break even. The Baltic Dry index, which measures the cost of moving commodities across the seas, was at 726 points on Friday, down 27 percent in the past 12 months.
Timely, incisive articles delivered directly to your inbox.