May 16th, 2012 20:37 GMT

by Geoff Garfield London

Published in WEEKLY

The research arm of European bank DVB is questioning whether higher levels of scrapping this year are a reliable indicator of the dry-bulk market reaching the bottom of the trough.

Riaz Khan, managing director of DVB’s research and strategic-planning division (RASP), says clearly it is not the case given the bank’s latest assessment of how scrapping numbers are still being outstripped by deliveries of newbuildings.

Khan says there is no doubt that scrapping is something the dry-bulk sector “seriously requires” but as a precursor to the market turning up again, recycling figures are not proving to be an accurate guide.

According to combined IHS Global and RASP data, some 160 dry-bulk vessels were sent for recycling during the first four months of 2012 but some 449 have been delivered.

It means the global dry-bulk fleet has grown by a net 289 vessels, to reach 9,453. In tonnage terms, the dry-bulk fleet has grown this year by 28.4 million dwt, taking it to 628.1 million dwt.

The largest number of deliveries has involved handymax ships (112), followed by panamaxes (110) and handysizes (108), while scrapping has lagged well behind.

Some 69 handysize vessels were recycled during the period, as compared with 108 delivered, and 27 handymaxes delivered versus 112 newbuildings arriving.

Measured by deadweight, panamaxes experienced the most scrapping — some 2.6 million tonnes — but, at the same time, 8.5 million dwt was added to the fleet, resulting in a net growth of 5.8 million dwt.

Most delivered ships involved small and large capesize bulkers (of up to 200,000 dwt), some 13.1 million dwt, but, again, only 2.9 million dwt was recycled between January and April 2012, says Khan, which left a net increase of 10.2 million dwt.

The situation in terms of reducing the fleet was no better as far as very large bulkers of over 200,000 dwt was concerned. Only one vessel of 260,000 dwt headed for the torch, while 6.1 million dwt was delivered, leaving a net plus of around 5.9 million dwt.

Not surprisingly, Khan expresses concern that all the attention being given in the media to accelerated levels of scrapping may be giving a wrong impression on the direction that the market is moving.

Every year since 2008, deliveries of dry-bulk vessels have doubled in terms of numbers, says Khan, including in 2011 when 1,181 vessels joined the fleet but only 379 exited.

DVB says that on top of the 449 vessels it has logged as delivered so far in 2012, it expects another 1,245.

Even if the bottom of the trough has been reached, owners can still expect many dips and spikes going forward due to various factors including seasonality, global economic movements and cashflow — “the key to survival of any owner”, says the bank.