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Handy<br />
WEEKLY 39.2011<br />
Scrap market at a turning point,<br />
what are the drivers?<br />
For owners’ disillusioned by the state of the<br />
freight markets, scrapping of even not so old<br />
ships can turn out to be the best investment<br />
decision for some time. The owner is of course<br />
familiar with making all the usual calculations<br />
ahead of a decision, but is he missing something?<br />
The value of a ship sold for scrap today is a<br />
known quantity, while the value of the expected<br />
cash flow from trading the ship up to the next<br />
decision point, plus the scrap value of the ship at<br />
that point in the future, is not.<br />
Although the typical NPV calculations made<br />
ahead of a<br />
scrapping<br />
decision is<br />
basically<br />
sound,<br />
perhaps<br />
too little<br />
thought<br />
goes into<br />
evaluating<br />
the likely<br />
revenues<br />
and scrap<br />
prices<br />
under<br />
different<br />
market<br />
scenarios in times of great uncertainty. For many<br />
years the main input to the “continue trading or<br />
scrap decision” was the expected future<br />
performance of the freight market, with less<br />
emphasis placed on the expected future price of<br />
ship scrap. Our argument is that more weight<br />
should be placed on the expected future scrap<br />
price. The fact is that scrap values are currently<br />
historically high and there is a substantial<br />
downside price risk attached, which even 2-3<br />
years trading in the “middle of the road” freight<br />
market scenario hardly offset. As an illustration,<br />
take the 2008 financial crisis. Scrap prices for<br />
large tankers tumbled from USD 520 per lwt in<br />
2007 to USD 300 the following year. For a<br />
VLCC scrap candidate this represented a loss of<br />
about 40% and USD 9 million in just one year.<br />
Lilleakerveien 4<br />
PO Box 7, Lilleaker<br />
N-0216 Oslo, Norway www.lorstem.com<br />
LORENTZEN & STEMOCO<br />
The state of the steel industry should be a matter<br />
of some importance as it ultimately has a bearing<br />
on the price of scrap steel. During cyclical<br />
downturns the demand for steel can tumble,<br />
production is scaled back and so is the demand for<br />
steel industry raw materials, iron ore, scrap steel<br />
and coal. Over the past month Chinese steel plate<br />
prices have declined 2-3%, perhaps a sign of<br />
weaker demand.<br />
World steel production could top 1.5 billion tons<br />
this year of which about 1.1 billion tons originates<br />
from pig iron/blast furnace production. Some 500<br />
million tons<br />
of scrap<br />
steel is<br />
recycled<br />
every year<br />
with only a<br />
small<br />
fraction<br />
originating<br />
from ship<br />
scrap. In<br />
2009, 8.2<br />
million tons<br />
of ships<br />
scrap was<br />
transacted<br />
accounting<br />
for just under 2% of all steel scrap supply. The<br />
volume of ships offered for demolition can impact<br />
ship scrap prices locally due to the limited number<br />
of ship demolition yards, but is unlikely to have<br />
much impact beyond the ship scrap market.<br />
Adversely, a deteriorating global macroeconomic<br />
climate will soon impact the steel industry which<br />
in turn could impact the price of ship scrap.<br />
So far China and other growing Asian economies<br />
have been offsetting lackluster growth in Europe<br />
and in the US. However, China which is set to<br />
produce about 700 million tons of crude steel this<br />
year, is not existing in a state of its own but<br />
depending to a large extent of weakening export<br />
markets. Within China all is not well and the<br />
economy appears to lose some momentum.<br />
1
WEEKLY 39.2011<br />
Recent headlines, pointing to 65 millions of<br />
unsold apartments and potential wave of<br />
corporate bankrupt resulting from unsound<br />
lending practices and too rapid expansion, give<br />
reasons for concern. A deterioration of the<br />
Chinese economy could curb steel production<br />
and reduce demand for iron ore and scrap steel<br />
with price falls to follow also impacting ship<br />
demolition prices. A large share of the Chinese<br />
economic expansion has been in building new<br />
production capacity and infrastructure, sectors<br />
which are highly steel intensive. A shift to higher<br />
consumer spending, which has already been<br />
called for some time by China’s main trading<br />
partners, would almost certainly be less steel<br />
intensive.<br />
Conclusion: Scrapping activity is up sharply this<br />
year, led by a surge in dry bulk ship demolition.<br />
With a massive tonnage overhang of large<br />
tankers and a much younger age profile<br />
compared to the dry bulk fleet, drastic measures<br />
are called for. With trading conditions looking<br />
distinctly difficult for the next 2-3 years and with<br />
secondhand prices already approaching current<br />
scrap prices an early move to scrap even 15-16<br />
year old ships can well turn out to be the best<br />
decision for the tanker owner.<br />
Have a continued nice week!<br />
Knut Stangebye Olsen<br />
LORENTZEN & STEMOCO<br />
2
WEEKLY 39.2011<br />
Last Week<br />
(USD/day)<br />
This week<br />
(USD/day)<br />
SMX (max. 15 yr. old<br />
craned) grabber<br />
T/A r/v 16000 16000<br />
Pac. r/v 14000 14000<br />
Cont./F.East 22250 22500<br />
F.East/Europe 9000 9000<br />
12 mos T/C 52,000 dwt 14500 14500<br />
SUPRAMAX PACIFIC<br />
It was a steady week for the short period market and<br />
not very much exiting happening at the beginning of<br />
the week. Mid week there was more activity as many<br />
of the Chinese and Koreans needed to cover their<br />
position prior the forth coming holidays. When Friday<br />
came it seemed that many had covered and the day<br />
went by quietly.<br />
Fixtures<br />
'Marylisa V' 2003 52174 dwt dely PG end September<br />
trip redel China $16700 daily - Grand Win Shipping<br />
'Jiu Hua Hai' 2008 53393 dwt dely dop Beira 28/29<br />
September 4/6 months trading redel Atlantic $14500<br />
daily - cnr -<br />
'Agonistis' 2010 58000 dwt dely CJK spot trip via<br />
Australia redel China $14000 daily - Klaveness<br />
'Mykali' 2011 56200 dwt dely Hondagua 2/4 October<br />
trip via Australia redel China $17500 daily -<br />
Klaveness<br />
'Flag Alexandros' 2010 56180 dwt dely Lanshan<br />
29/30 September trip redel WC India intention steels<br />
$14500 daily - cnr<br />
'Jin Yuan' 2007 55400 dwt dely Beihai 29/30<br />
September trip via Se Asia redel China intention<br />
nickel ore $18500 daily - cnr<br />
'Navios Celestial' 2009 58063 dwt dely S Korea end<br />
Sept/ely Oct trip via Nopac redel Singapore-Japan<br />
approx $14750 daily - cnr<br />
'Desert Condor' 2011 56000 dwt dely Japan early<br />
October 2 laden legs redel Singapore-Japan 1st leg<br />
intention Q'land-Indonesia sugar approx $15000 daily<br />
- STX Pan Ocean - <br />
'Efi Theo' 1997 45423 dwt dely Beihai spot trip via<br />
N.Australia redel Singapore-Japan $13500 daily -<br />
Pacbasin<br />
LORENTZEN & STEMOCO<br />
'Christine Star' 2011 56854 dwt dely Lianyungang<br />
spot trip via SE Asia redel China intention nickel ore<br />
$16500 daily - cnr<br />
'Grebe Arrow' 1997 55671 dwt dely Jeddah 5/10<br />
October trip via Red Sea redel India $17800 daily -<br />
Bulkmarine<br />
'Prabhu Mihika' 2005 55557 dwt dely Jintang spot trip<br />
via Nopac redel SE Asia approx $14000 daily - Fednav<br />
'Kastro' 2008 58780 dwt dely Qingdao spot 3/5<br />
months trading redel worldwide $14600 daily - WBC -<br />
<br />
SUPRAMAX ATLANTIC<br />
With a quiet pacific market due to Golden Week. The<br />
Atlantic is staying firm in all areas for the Supras.<br />
Still showing strong levels in the USG, with a lack of<br />
tonnage and more and more cargoes hitting the market<br />
it seems that it will stay strong in the week to come.<br />
All in all strong number all over the line, but the next<br />
weeks will show if it will hold up.<br />
The markets are still showing some activity and<br />
interest for shorter period.<br />
Fixtures<br />
'Star Manx' 2009 58193 dwt dely ECUK spot trip<br />
redel Singapore-Japan $23500 daily - cnr<br />
'Kibali' 2011 58000 dwt dely S.Brazil early October<br />
trip redel Singapore-Japan approx $22000 daily +<br />
approx $375000 bb - cnr<br />
'Banos A' 2010 57000 dwt dely N Brazil early<br />
October trip redel China $21000 daily + approx<br />
$400000 bb - cnr<br />
'United Stars' 1995 43991 dwt dely S Brazil spot trip<br />
redel Singapore-Japan $20000 daily + $400000 bb -<br />
Dreyfus<br />
'Elegant Sky' 2007 53549 dwt dely aps USGulf spot<br />
trip redel Continent approx $27500 daily - Dreyfus<br />
3
WEEKLY 39.2011<br />
'Yangtze Pioneer' 2011 32688 dwt dely Antonina<br />
early October about 3/5 months trading redel<br />
worldwide approx $17000 daily - cnr<br />
'Mateo Tres' 2010 57000 dwt dely aps N Brazil<br />
early/mid October trip via PG redel PMO $24500<br />
daily + $450000 bb - cnr<br />
'Leo Advance' 2007 56600 dwt dely aps USGulf spot<br />
trip redel Morocco approx $30500 daily - Oldendorff<br />
'Navios Kypros' 2003 55222 dwt dely USGulf spot<br />
trip redel Med $26400 daily - U-Sea Bulk<br />
'Jaeger' 2004 52483 dwt dely USGulf early October<br />
trip redel Peru $28000 daily - Pacbasin<br />
'Tigris' 2003 52454 dwt dely W.Africa spot trip via N<br />
Brazil and AG redel PMO approx $25000 daily -<br />
Pacbasin - <br />
'Glory Sanye' 1994 45216 dwt dely EC Florida spot<br />
trip via USGulf redel W Africa $22000 daily - ABC<br />
'Tubarao' 2007 53350 dwt dely USGulf mid October<br />
trip redel Singapore-Japan intention grain approx<br />
$31000 daily - Noble<br />
'Kang Fu' 2002 51069 dwt dely USGulf 15/20<br />
October trip redel China intention pet coke approx<br />
$35500 daily - STX Pan Ocean<br />
'Elena Topic' 1999 49928 dwt dely Continent spot<br />
trip redel E Med intention scrap $21000 daily - cnr<br />
'Glory Sanye' 1994 45216 dwt dely EC Florida spot<br />
trip via USGulf redel W.Africa $23000 daily -<br />
ABCML - <br />
'Tektoneos' 1993 43620 dwt dely Continent spot trip<br />
redel Turkey intention scrap $19000 daily - Nordic<br />
Bulk Carriers<br />
LORENTZEN & STEMOCO<br />
'POS Island' 2006 55710 dwt dely W.Africa 8/11<br />
October 3/5 months trading redel worldwide $19750<br />
daily - Copenship<br />
PANAMAX<br />
Modern Panamax<br />
Last Week<br />
(USD/day)<br />
Last Week<br />
(USD/day)<br />
Trans Atlantic r/v 14 100 14 900<br />
Pacific r/v 11 300 11 750<br />
Trip Atl./F.East 22 650 23 900<br />
Trip F.East/Atl. 4 470 4 650<br />
12 mos. T/C 14 500 14 500<br />
CAPESIZE<br />
Capesize<br />
Last Week<br />
(USD/mt)<br />
Tubarao/Beilun-Baoshan 27.8 26.8<br />
Richards Bay/Rotterdam 13.0 12.6<br />
Tubarao/Rotterdam 14.6 14.0<br />
Bolivar/Rotterdam 15.7 15.0<br />
Dampier/Beilun-Baoshan 11.7 11.1<br />
This Week<br />
(USD/mt)<br />
Del.Cont.-Med. TCT F.East 48 400 46 200<br />
Del. Gib-Hbg T/A r/v 33 860 29 900<br />
Del.China-Jpn TCT Cont.-Med. 6 460 5 690<br />
F.East r/v 26 800 24 560<br />
One year T/C 170,000 dwt 19 250 19 000<br />
4
WEEKLY 39.2011<br />
INTERMEDIATE/FLEXI (10/25,000 DWT) NWE<br />
This week we have seen an increase in intermediate<br />
activity all over North West Europe, and also on the<br />
sub 10kt parcels. Although cargoes ex Grangemouth<br />
are being reported at USD 145,000 lumpsum this<br />
week, cargoes ex WC Sweden have strengthened to<br />
USD 140 - 145,000 lumpsum. Naphta cargoes ex<br />
Baltic are holding firm with more fixtures reported at<br />
USD 235,000 lumpsum as last week. We are still<br />
expecting to see an increase in movements ex Baltic as<br />
we move into October. As seen in the below graph,<br />
the index for September increased with lower bunker<br />
costs and slightly higher realized rates on average,<br />
compared to the previous month.<br />
Outlook: Firmer<br />
CLEAN<br />
Clean outlook: Firmer<br />
Handy/MR<br />
Last<br />
Week<br />
This<br />
Week<br />
(WS) (WS)<br />
Average<br />
earnings<br />
This week<br />
(USD/day)<br />
37.000 CONT/USAC R/V 161 178 11 700<br />
25.000 CROSS UKC R/V 181 215 14 650<br />
27.500 MED/UKCM R/V 153 160 8 800<br />
28.500 CARIBS/USAC R/V 130 133 850<br />
33.000 MEG/JAPAN R/V 150 145 4 200<br />
30.000 SPORE/JAPAN R/V 155 153 5 800<br />
LR1/LR2<br />
70.000 CONT/USAC R/V 115 110 7 200<br />
55.000 MEG/JAPAN R/V 133 125 7 550<br />
LORENTZEN & STEMOCO<br />
VLCC trades ended last week on a year to date low<br />
with earnings remaining below opex for the majority of<br />
fixtures. Other sectors were mostly unchanged with<br />
relatively little activity and long position lists showing<br />
spot availability of vessels.<br />
Looking ahead, US inventory draws of both crude and<br />
products in the week ended October 5 th , gives some<br />
support for the weeks ahead. In addition the VLCC<br />
availability in the MEG has declined compared to last<br />
week, however the oversupply lingers on. In the MED,<br />
weather delays in the Turkish Straights are causing<br />
inefficiencies which could continue to support Owners’<br />
bargaining position in the week to come. Both Afra’s<br />
and Suezmax vessels have seen greatly improved rates<br />
as charterers are looking to secure tonnage in<br />
anticipation of further delays.<br />
Product tanker trades in the Caribbean are maintaining<br />
their strength on the back of continued inquiries for<br />
products in Latin America.<br />
DIRTY<br />
Crude outlook: Steady<br />
VLCC<br />
MT 290.000<br />
MEG/Continent<br />
MT 250.000<br />
MEG/Japan<br />
Suezmax<br />
Last<br />
Week<br />
This<br />
Week<br />
(WS) (WS)<br />
Average<br />
earnings<br />
This week<br />
(USD/day)<br />
34 32 -10 000<br />
45 41 -8 000<br />
MT 130.000 WAF/USG 75 73 9 700<br />
MT 130.000 Sidi<br />
Kerir/Lavera<br />
Aframax<br />
88 80 10 150<br />
80.000 N.Sea/USAC 105 105 11 750<br />
80.000 N.Sea/UK-Cont 97 98 4 450<br />
80.000 MEG/Singapore 100 100 7 950<br />
70.000 Caribs/USAC-G 90 90 3 800<br />
Panamax<br />
50.000 Caribs/USG 124 124 8 900<br />
5
WEEKLY 39.2011<br />
For further information on Gas, request a copy of our<br />
Weekly Gas Report on e-mail: lorgas@lorstem.no<br />
BULK CARRIER<br />
LORENTZEN & STEMOCO<br />
TYPE NAME DWT BUILT YARD GIR PRICE (m$) BYERS COMMENTS<br />
CAPE<br />
CAPE<br />
CAPE<br />
UNIVERSAL<br />
Hull no 124<br />
UNIVERSAL<br />
Hull no 125<br />
UNIVERSAL<br />
Hull no 149<br />
205,000 2011<br />
205,000 2011/12<br />
205,000 2011/12<br />
CAPE HENG SHAN 174,145 2007<br />
CAPE<br />
CAPE<br />
WAKABA<br />
171,978 1996<br />
CAPE C. OASIS 165,693 1996<br />
PAMX GH POWER 76,421 2002<br />
PMAX<br />
PMAX<br />
SMAX<br />
SMAX<br />
SMAX<br />
SMAX<br />
BUNGA SAGA<br />
9<br />
TRIDENT<br />
ENDEAVOR<br />
SUNNY<br />
GLOBE<br />
ATLANTIC<br />
ADVENTURE<br />
OCEAN<br />
SPIRIT<br />
SANKO<br />
SUMMIT<br />
73,127 1999<br />
68,789 1990<br />
Universal<br />
Shipbuilding<br />
Universal<br />
Shipbuilding<br />
Universal<br />
Shipbuilding<br />
SWS -Shanghai<br />
Waigaoqiao<br />
Kawasaki HI -<br />
Sakaide<br />
CSBS - China<br />
Shipbuilding<br />
Tsuneishi Shbldg -<br />
Tadotsu<br />
Hyundai Heavy<br />
Industries<br />
Hyundai Heavy<br />
Industries<br />
55,715 2005 Oshima Shipbuilding<br />
55,709 2006 Oshima Shipbuilding<br />
55,614 2006<br />
NACKS - Nantong<br />
COSCO KHI<br />
50,655 1998 Namura Shipbuilding<br />
SMAX FREE LADY 50,246 2003 Mitsui Tamano<br />
HMAX DE SHAN 37,489 1984 Mitsubishi Nagasaki<br />
HANSY SUNRISE 86 23,987 1981 Imabari Shipbuilding<br />
C 4 x<br />
30<br />
C 4 x<br />
30<br />
C 4 x<br />
31<br />
C 4 x<br />
30<br />
C 4 x<br />
31<br />
C 3 x<br />
30<br />
C 2 x<br />
15<br />
C 4 x<br />
25<br />
$56.25<br />
$56.50<br />
$56.50<br />
$36.00<br />
$18.20<br />
Clients of<br />
China Steel<br />
Express<br />
Clients of Hsin<br />
Chien Marine<br />
Chinese<br />
interests<br />
Clients of<br />
Cyprus<br />
Maritime<br />
$17.00 KAMCO<br />
Dely Dec 2011<br />
Enbloc deal<br />
under<br />
negotiations. Dely<br />
2011/2012<br />
$19.50 Greek under negos<br />
$16.75 Greek<br />
$10.50<br />
$25.00<br />
$28.80<br />
$25.00<br />
$16.50<br />
European<br />
interests<br />
Undisclosed<br />
Interests<br />
Undisclosed<br />
Interests<br />
Undisclosed<br />
Interests<br />
Undisclosed<br />
Interests<br />
$21.90 Greek<br />
$5.20<br />
$2.90<br />
Taiwanese<br />
interests<br />
Chinese<br />
interests<br />
ss due 3/2015<br />
open hatch. 8/8<br />
ho/ha<br />
6
WEEKLY 39.2011<br />
TANKER<br />
LORENTZEN & STEMOCO<br />
TYPE NAME DWT BUILT YARD IMO PRICE (m$) BYERS COMMENTS<br />
VLCC TAKASE 314,250 1999 Mitsui Chiba Ichihara $27.50<br />
MR PAFOS 41,354 1993<br />
STST SPRING URSA 16,026 1997<br />
STST<br />
SICHEM<br />
PEACE<br />
8,807 2005<br />
Minami-Nippon<br />
Usuki<br />
Shin Kurushima<br />
Akitsu<br />
Usuki Shipyard Co<br />
Ltd<br />
IMO<br />
II/III<br />
IMO<br />
II/III<br />
IMO<br />
II<br />
-<br />
$8.70<br />
$10.00<br />
Clients of<br />
Polembros<br />
Undisclosed<br />
Interests<br />
Undisclosed<br />
Interests<br />
South East<br />
Asian<br />
interests<br />
undisclosed price<br />
Stainless steel<br />
tanks<br />
Stainless steel<br />
tanks<br />
7
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