As summer approaches in the northern hemisphere, scrapping activity has been continuing at a firm pace, and appears set to come close to record levels in full year 2016. With earnings suffering in the bulkcarrier and containership sectors, owners have looked to 'clean out' a large volume of older tonnage, while the upcoming Panama Canal expansion has added another interesting dimension.

Time for Tidy

After slowing down in the second half of 2015, overall scrapping activity has returned to a rapid pace in 2016, and 457 vessels of a combined 25.8m dwt have been reportedly demolished in the year so far. The majority of this tonnage has been in the bulkcarrier sector, particularly in the larger sizes, while boxship scrapping has also been considerable, as earnings in these sectors continue to languish.

Brushing away Bulkers

In the bulkcarrier sector, firm scrapping activity in 2015 has continued this year, and 262 bulkers of a combined 20.2m dwt have been demolished in 2016 so far. This accounts for 79% of total scrapping in dwt terms, the same proportion as in full year 2015. At the larger end of the sector, demolition activity has been particularly strong. In the year to date 62 Capesizes have been demolished, following firm scrapping of 93 vessels in 2015. 72 Panamaxes have also been reportedly sold for demolition, with older designs of c.70-75,000 dwt making up the majority.

Cleaning up in Containers

At the same time, containership demolition has also picked up in the year so far, with 70 boxships totalling c.217,000 TEU and 3.0m dwt reportedly scrapped. Boxships account for 11% of total tonnage scrapped in 2016 so far, up from 7% in 2015. As well as facing weak earnings on the back of limited demand growth, owners have also been motivated to scrap vessels by the upcoming opening of the expanded Panama Canal. Boxships of up to c.13,500 TEU will be able to transit the new locks, with old Panamax designs expected to suffer from reduced deployment opportunities. However, interestingly it has been Post-Panamax vessels in the 3,000-7,999 TEU range that have seen the greatest increase in recycling activity in the year to date, with 12 ships scrapped, up from just two in 2015. Meanwhile, 21 Panamaxes have been reported demolished, a threefold increase year-on-year, and similar to 2014 levels.

Recycling Rest?

Outside of these two sectors, demolition activity has been relatively subdued in the year so far. Just 23 tankers of 1.1m dwt have been reportedly sold for scrap, following very limited recycling of 2.4m dwt last year. Elsewhere, offshore vessel demolition has been steady, but lower than some might have expected given the struggling market, perhaps reflecting the low cost of layup in many segments.

Once again, bulkers remain the focus of scrapping in 2016 so far, and a considerable volume of boxship tonnage has also been sent to breakers' yards. With earnings showing little sign of improvement across both sectors yet, this pattern appears likely to continue, and total demolition volumes are expected to come close to record levels by the end of the year.