As we migrate back to performing tanker research, with a focus on products, we thought that, rather than starting at the beginning, that we would start at the ending — demolition. Both owners and shipbrokers have breathlessly highlighted the near-record clean tanker demolition this year, which should exceed 3.2 mdwt, under miserable market conditions and elevated scrap prices.
This is an impressive jump from the 0.8 mdwt scrapped in 2020, with MRs taking a proportionate share, at 1.4 mdwt. Still, the product tanker fleet has expanded by 53% since 2010, so as a percentage of the fleet, 2021 is just another uncomfortable 2% demo year for owners. The post-crisis peak of 3.7 mdwt scrapped in 2010 represented 3.5% of the fleet, and subsequent years have featured binary behaviour of either demo of 0.5% of the fleet or bad market scrapping of 1.5-2.0%.
One clever shipbroker has observed the sharp drop in the average age of product tanker scrapping during 2021. Not only does the volume of scrapping pick up during market troughs, but also, the average age drops, slipping below 24 years in 2021. This demolition age is approaching the younger ages of crude tanker scrapping, in place since the financial crisis. Generally, crude tankers face tougher vetting, and have fewer trading opportunities for older vessels than product tankers.
We use 4-quarter moving averages, since the quarterly series is volatile, even with dwt-weighted ages. The spikes above 30 years of age are from smaller tanker demolition, and removing them lowers the recent averages by a year.
Generally, the smaller tankers have older demolition ages, since they have more opportunities to trade at senior ages, typically on coastal trades. Note the 25-year average demolition age for MRs. Remember this, the next time Scorpio (STNG) or another product tanker owner shows investors a chart with the number of MRs turning 15 years old.
Younger scrapping can happen, but only 11% of the vessels scrapped since 2009 have been below 20 years old (MRs only 8%). Most of these younger vessels were from lower-quality, 2nd & 3rd-tier shipyards.
Still, when owners get serious about demolition, they scrap younger tonnage, hence the drop in average ages during weak markets and demo surges. This cycle, owners scrapped few ships near the usual 5th special survey at 25 years, with several near the 5th Intermediate of 22.5 years and the 4th special at 20 years old.
MR owners have proven particularly pessimistic during this year’s demolition purge, with 30 vessels heading to the breakers. Scrapping of 25-year-olds and over remained consistent with previous years, but demolition of 22.5-year-olds near the 5th intermediate survey dominated. As a result, the average demolition age for 2021 should be near 22.7 years.
Looking forward, scrapping volumes will depend on the modelled rate environment, but an improvement in clean rates should see a return to more normal demolition ages.
One factor driving the younger tonnage demolition has been the lack of traditional 25-year old candidates, which should improve in late-2023 and 2024. If the clean market remains healthy, then the average age should return to the 26-year old level during this period.
This chart also highlights the ageing of the product tanker fleet and how the boom-period tonnage of the 2000s will start approaching their critical surveys at the end of the decade. How this plays out will depend upon how the marine energy transition evolves and how briskly owners order new compliant tonnage. We will examine some of these decarbonisation ordering/demolition scenarios in the coming months.