The World’s Largest Buyer of Ships and Offshore Assets€¦ · 01/01/16 01/03/16 01/05/16...

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Hot Topics in Ship Recycling: From Residual Values to Regulations

17th Annual Marine Money German Ship Finance Forum, 1 March 2018

Evan F. Sproviero, Head of Projects, GMS

The World’s Largest Buyer of Ships and

Offshore Assets

www.gmsinc.net

2www.gmsinc.net Hot Topics in Ship Recycling: From Residual Values to Regulations

A. Recycling Prices and Residual Values

B. Volumes Recycled

C. Regulations Affecting the Market

3www.gmsinc.net

Items to Consider:

1. Why has understanding Residual Values become important to

Shipowners and Capital Providers?

2. Residual Values = Recycling Value?

3. How can we calculate Residual Values?

4. When should we start thinking of Residual Values?

5. Is their a way to monetize Residual Values TODAY?


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Recent trends in the past few years and the growing importance of

residual values and the need to closely follow recycling markets:

1. Shorter Life Expectancy of Ships

2. Poor Freight Rates

3. Oversupply of Vessels

4. Lack of Debt Financing

5. Regulatory Pressure (BWTS, Scrubbers, Recycling Regulations)

Consequently,

A. Shortage of trading buyers

B. Catastrophic drop in asset values (often recycling prices are equal to or at

times greater than 2nd hand prices)


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30.6

28.58

24.0625.29

23.75

29.32

22.17

18.61

20.73

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2015 2016 2017

Average age for Recycling

Tanker Dry Bulk Container

Data Source: Clarksons Database


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2016-2017 Earnings

Average VLCC c. 2010-built Earnings Average Aframax c. 2010-built Earnings

Average Capesize c. 2010-built Earnings Clarksons Average Containership Earnings


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10727 10876 11113

5171 5089 5071

2477 2617 2740

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2016-Jan 2017-Jan 2018-jan

Current Fleet

Bulk Carrier Containerships Tankers

Percentage Change – Tankers : 5.6% for 2017 and 4.7% for 2018

8.77

9.70

10.62

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Bulk Carriers Tankers Containerships

Average Age

2016-Jan 2017-Jan 2018-Jan


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The Hammonia Grenada (built 2010) wassold for recycling at an estimated $5.5mearlier in 2017. More than 12 vessels (8 ofthem are containerships) built after 2004were been sold for recycling in 2017.


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1. Supply & Demand1. Supply is affected largely by earnings

2. Demand is heavily influenced by many factors including steel prices and supply of vessels for

sale in the market

2. Prices of Commodities1. Domestic steel prices (recycling, ship plate)

2. International Finished steel (rebar, billets, etc)

3. Currency exchange rates

4. International and Domestic Regulations

5. Recycling & Trading Opportunities1. Vessel condition [recycling (own power/under tow), or some trading potential]

2. Freight rate

6. Speculation


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Data Source: Baltic Exchange

- Properly timing your recycling sale is JUST AS IMPORTANT as closely following the SNP market in an effort to maximize your return on the ship!

- What should lenders use for forward residual value recycling related pricing?

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BDA B/C SUBCON

BDA B/C SUBCON Percentage Change


Time Series: Second-Hand VS. Recycling Values

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0.00

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2012 2013 2014 2015 2016 2017

Capesize Second-Hand and Recycling Prices

Capesize 5 Year Old Secondhand Prices Capesize 15 Year Old Secondhand Prices

Capesize Recycling Prices

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Containership Second-Hand and Recycling Prices

Containership 3200 / 3600 teu 5yr old Secondhand Prices

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Narrow Beam Containership c.3750 TEU Gls Recycling Prices

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VLCC Second-hand and Recycling Prices

VLCC 5 Year Old Secondhand Prices VLCC 15 Year Old Secondhand Prices

VLCC Recycling Prices

www.gmsinc.net Hot Topics in Ship Recycling: From Residual Values to Regulations

13www.gmsinc.net

- VesselsValue valued RMT’s

entire fleet (14 with an average

age of 9.5 years ) at $89m,

- Today’s recycling price more

than USD 115M (approx.)

- 6 well maintained Panamaxes

built between 2009 and 2011 at

a total cost of $60-65m

- Today’s recycling price =

USD 54M (approx.)

Volatility in Residual Values presents significant risks and opportunities

(Containers)


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• Kohyohsan, built 2001, Capesize

bulker carrier, was sold at approx.

$ 5.2m for further

trading on 16th Feb 2016.

Source: Seaweb, Clarkson’s Database

5.2 5.3

9.6

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Sale Done on Feb 2016 Scrap Value on Feb 2016 Scrap Value Today(Estimated)

FMV Today

Value of KOHYOHSAN (in million USD)


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Current Demo Prices ($ per LT)

Tankers: $450/ Long Ton

VLCC= $19mn+/-

Containers: $460/ Long Ton

Pmax= $9.2mn+/-

Bulkers: $440/ Long Ton

Cape= $10mn+/-


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Dry Bulk Container Tanker Offshore

New Building

28m DWT

(375 VSLS)654,411 TEU

(194 VSLS)

1.6m DWT

(54 VSLS)

2.9m DWT

(193 VSLS)

33.3m DWT

(429 VSLS)904,805 TEU

(131 VSLS)

47.23m DWT

(564 VSLS)

2.7m DWT

(304VSLS)38.17m DWT

(454 VSLS)

14.53m DWT

(215 VSLS)

1,147,240 TEU

(148 VSLS)

397,900 TEU

(141 VSLS)

686k DWT

(156VSLS)

46.09m DWT

(454 VSLS)

12.99m DWT

(136 VSLS)

2.06m DWT

(128 VSLS)

2016 2017 2016 2017 2016 2017 2016 2017

2018 - Expectation

13m DWT

2018 - Expectation 2018 - Expectation 2018 - Expectation

300,000 TEU 16m DWT 2m DWT

2016 2017 2016 2017 2016 2017 2016 2017


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2015 2016 2017 2018 - YTD

Recycled Units 2015-2018 YTD in Mill DWT

Dry Bulk Container Tanker

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Dry Bulk Container Tanker

Recycled Units 2015-2018 YTD in Mill DWT

2015 2016 2017 2018 - YTD


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Source: TradeWinds

Tankers sent for recycling have reached a three year high on the back of a combination of low freight rates and high demo prices.

Over the last 12 months, the recycling value of an average VLCC had risen by 40%, from $12m ($300/ldt) to $16.8m ($420/ldt).

However, it still pales in comparison to delivery volumes.

More tankers need to be recycled.


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• Ballast Water / Emissions

• EU Waste Shipment Regulation / EU Ship Recycling Regulation

• EU flag ships to be recycled in EU approved facilities

• If a ship, regardless of flag, departs an EU port for recycling, it is obliged to be recycled in an OECD

based yard with BASEL to apply

• Indian yards have applied to EU for approval

• Hong Kong Convention

• Certified yards

• SOC yards

• IHM, SRP, FMP, Auditing and Reporting

• 58 yards in Alang are SOC with HKC certified, and 8 are in progress (updated Feb, 2018)

• More than 55% of the recycling yards in Alang are already or working towards SOC with HKC.

• In October, 2017, the PHP shipbreaking yard received a Statement of Compliance under the Hong

Kong Convention for the Safe and Environmentally Sound Recycling of Ships from the classification

society RINA.

Old vessels for which, upgrade is not cost-effective, will be recycled


24www.gmsinc.net

1. Residual Values (recycling related) have become important to

Shipowners and Capital Providers

2. Residual Values often equal Recycling Values with few exceptions

3. Given the markets over the last few years, residual value / recycling

pricing is a key component of SNP / exit returns and should be

considered from newbuilding delivery

4. Recycling Volumes are high but there is capacity to expand / recycle

more tonnage (NB deliveries still far outpacing recycling)

5. Regulations will play an even larger role in the future of recycling but it

is important for owners to properly understand the facts about the

recycling market and efforts being undertaken to offer RSR options

6. Is there a way to monetize Residual Values TODAY?1. Yes. Please contact us or visit our website: http://gmsinc.net/ or download our app from

the App store / Google Play


http://gmsinc.net/

26www.gmsinc.net

Established in USA in 1992. Largest Buyer of Vessels & Offshore Assets!

In last few years, principals of GMS have delivered about 1/3 of the world’s fleet sold for recycling (excluding Chinese subsidized tonnage).World's FIRST ISO 9001:2000 certified Buyer.

GMS has negotiated (about):• 3,300 ships and Offshore Assets; • 100,000,000 DWT;• 300 vessels/offshore assets in a single year (2012)• One of the BIGGEST deals in the history of recycling

With multiple offices across the world including: U.S.A., Germany, Greece , U.A.E., Singapore, China, Korea, Japan and exclusive rep offices in India, Bangladesh, Pakistan and Turkey. This allows us to deliver 24/7 local service to global shipping clients.

Financial and Management capability to:• Buy fleets on simple CASH "as is where is“ terms. • Take forward positions• Structure Deals


The World’s Largest Buyer of Ships and Offshore Assets€¦ · 01/01/16 01/03/16 01/05/16...

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