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Ship Recycling - Steel Advantage

According to the January 27 edition of the UK maritime media "Maritime Advocate", a study on dry bulk carrier values commissioned by the Baltic Exchange to be conducted by Zuoz Industrial LLC, a New York-based maritime consultancy, has revealed a positive sign for investors in middle aged dry bulk carriers(1), namely, the recent trend of higher recycled steel values.

 

The study analyzed the potential impact of longer term higher ship recycling values on 5-year old tonnage. Recycled steel is becoming an increasingly popular choice due to its lower carbon footprint (CFP) compared with virgin steel, and the study discusses whether rising steel recycling values are a long-term trend. Despite a 20% drop from its April 2022 high, the price of lightweight steel is $520/ ldt (2), more than double the historic average since 2009.

 

“If the higher price trends over the past few years are truly based on demand, then the risk of investing in middle aged dry bulkers has decreased, especially given the current softer freight markets," said the author of the study.

 

In addition to the Baltic Dry Index (3), the Baltic Exchange publishes the Baltic Exchange Investor Indices, comprising the Baltic Residual Risk Index which is a ratio of a vessel's residual value against its recycling value, and the Baltic Residual Value Index which calculates the value by taking the written down cost of a five year old vessel by fixing the earnings on the basis of a five year timecharter and adding back the operating costs.

 

Notes:

(1) Dry bulk carriers: An ocean-going tramper (dry bulker) that carries dry cargoes in bulk such as iron ore, coal, and grain.

 

(2) LDT stands for Light Displacement Tonnage, which is used as a unit for scrapping as the actual weight of the vessel itself (including equipment, boilers, etc., but excluding bunkers, cargo, food and other stores, water, etc.). It is thus equal to the weight of the steel used in the vessel.

 

(3) The Baltic Dry Index (BDI) is the most common index used to measure changes in the cost to transport various dry bulk commodities around the world. Calculated by the London-based Baltic Exchange, it is a composite of different sizes of dry bulkers (Capesize, Panamax and Supramax) averages, derived by contacting various shipping brokers to assess price levels for various routes, products to transport, and delivery times.

 

The following is an extract of the executive summary section of the report by Zuoz Industrial LLC. For a free PDF copy of it (four pages in A4), please write to nagai@iruniverse.co.jp

 

Baltic Investor Indices

Author:Urs Dür, Zuoz Industrial LLC on behalf of The Baltic Exchange

 

In pursuit of net zero, the value of recycled steel may remain elevated, possibly reducing residual risk.

 

Executive Summary

• Recycled steel demand may stay firm due to its comparatively low carbon footprint.

• Persistently higher recycle values may reduce residual risk over time.

 

The dry freight markets have been very weak of late with the Baltic Dry Index at 740 as of January 23rd. This is one of the lowest levels since 2020 which neared historical lows. While the market downward trend-line began in the fourth quarter of 2021, dry bulk ship asset values were stable to increasing through the summer of 2022. Asset values were supported by a modest improvement in rates over the summer of 2022 but also due the orderbook for dry bulk vessels being at a multi-decade low (where it remains). As this freight market swoon has persisted, dry bulk asset values have fallen in recent months. Also, the price per lightweight tonne (ldt) for ship recycling has fallen over 20% since its April 2022 high. However, at ~$520/ldt currently, the recycle values of ships are more than double the historic average since 2009 (average for bulkers over the major recycle markets).

 

Japanese site is here

 

 

(IRuniverse H.Nagai)

 

 

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