Number of oil tankers headed to scrapyards to hit 11-year high

London (Quantum Commodity Intelligence) - Demolition of oil product tankers is on course to reach an 11-year high amid a surge in prices for scrap metal, according to the trade body BIMCO.

Some 1.2 million deadweight tonnage has been sold to cash buyers for scrap in the first four months the year, the same tonnage demolished annually in both 2019 and 2020.

If the rate continues between May and December, 3.6 million WT, or 2.1% of the active oil product tanker fleet will have been broken up this year.

The average tanker demolition steel price paid in Bangladesh reached an all-time high on 7 May 2021 of $520 per lightweight ton, which is the weight of the vessel on land and stripped bare.

"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.

"If the spot market continues to bleed for another year with no real improvement in earnings, demolition will accelerate in 2022."

Crude tankers have also gone for scrap, but it a much larger fleet, and some 10 million DWT would have to be broken up by the endif the year to match 2.1% of the fleet.

Over the first four months of the year, around 1.44 million DWT has been demolished, around 60% of the 2.4 million scrapped in 2020.

These figures reflect active crude tankers only, rather than vessels used for floating storage which have been sold off for scrap.

When shipping rates crashed in 2018, some 18.5 DWT of crude tankers were broken up.

"No owner sells a ship because of high demolition prices," Sands adds.

"He sells when the freight markets have been horrific for long enough, and only for demolition if the second-hand value is lower.

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."