RECYCLING took a hit this past year after Houthi attacks created the Red Sea crisis, lengthening voyages by 15 days and buoying freight rates such that demand for vessels dented recycling. Temporary Far East Asian ports’ congestion aggravated the slowdown.

However, from now until 2026, Wirana Shipping expects substantial newbuilding ship deliveries in three segments — container, LNG and vehicle carriers that should result in older ships being sent for recycling.

Containerships: Newbuilding orders equivalent to 18% of the current fleet size will be delivered over the next four years with major deliveries expected to continue from now until 2026. Modern tonnage and larger container vessels are finding long-term employment now, but smaller-sized container vessels and older tonnage may be the first sent for recycling.

Vehicle carrier ships: Newbuilding orders account for 26% of the current fleet size. There will be substantial newbuilding deliveries in 2025 and 2026. The Red Sea crisis has fuelled requirements for PCTC ships due to extended voyages. With annual global demand growth for PCTCs expected at 5% per annum, against forecast fleet growth of 8%-9% in those years, Wirana Shipping expects older tonnage for recycling to start from 2026.

LNG ships: Newbuilding orders represent 49% of the current fleet size. About 6% of the current fleet size will be delivered in the remainder or 2024, 14% in 2025, 13% in 2026 and 11% in 2027. Against this, annual market growth of 5.3% is expected. Despite likely conversions of LNG vessels for power generation that will remove some of the older units, LNG vessels will likely be sent for recycling from next year.

The table below gives specific numbers of expected newbuilding ship deliveries.

While supply of tonnage for recycling is expected to increase from 4Q24 and into 2025, South Asian steel markets are expected to be weak and unwilling to offer higher prices for recycling tonnage because of lower steel demand locally. South Asia handles about 85% of global recycling.

China, the world’s biggest steel producer, has reduced its production in the first seven months of 2024 by 2.2% year on year, but not enough to stop China relying more on exporting steel, reducing global steel prices.

“We are looking at a slowdown in the overall Chinese economy where even a 5% annual economic growth for 2024 seems difficult to achieve due to a very weak property market, weak consumer confidence and the current slowing down of manufacturing,” said Wirana Shipping CEO Rakesh Khetan (aka Billu).

Khetan said: “Despite the fact that central banks around the world will announce interest rate reductions, these reductions would not be of a scale that would instantly improve economic activity or liquidity so, even in the best scenario, global steel demand may only marginally improve due to which steel prices would continue to be under pressure.”

Increased 4Q24 tonnage may be absorbed by ship recycling facilities (SRF) hungry for recycling, but continued supply will put downward pressure on prices offered, and SRF will be cautious seeking fresh scrapping. In such a situation, SRF will prefer smaller, lightweight tonnage.

Once HKC enters force in June 2025, some SRF in Pakistan and Bangladesh may not have completed the process of HKC-compliance (mainly to due to the weak ship recycling market for the past one to two years) which may restrict the number of available SRF to accept tonnage for HKC-compliant recycling.

“Timing of making purchases and sales decision will be critical for the stakeholders of recycling industry to be able to maximise benefit from the upcoming market cycle,” said Khetan.