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Chinese subsidy encourages younger dry bulk scrapping age

Chinese owners are willing to scrap younger dry bulk ships than their international counterparts encouraged by government subsidies, according to Bimco analyst Peter Sand.

In a research note issued on Friday Sand said international shipowners would only scrap bulkers of 18 years and older.

“All ship owners have dug into the pool of 1995 to 1997-built bulk carriers in recent years, when choosing ships for scrapping,” Sand said.

“Chinese shipowners in particular have scrapped even younger ships, built in 1998-2000. They were encouraged to do so by a subsidy program. With the extension of the programme it’s likely more of the same will show in 2016 and 2017.”

China’s scrapping subsidy was introduced in 2013 and was extended for a further two years in early 2015. Of 28 ships built in 1998 and 1999 and scrapped between 2013 and 2015, some 19 were Chinese-flagged.

With the highly depressed dry bulk market the average at which ships are scrapped is falling hitting 25.3 years in 2015 compared to 28.2 years in 2013.

“The recent development in the scrapping age, is set to continue in 2016,” Sand said.

“In a heavily oversupplied market as we see in these years, scrapping remains the only permanent way to better the fundamental balance. Idling and slow steaming, as effective as they may seem, are only temporary measures not a part of a sustainable solution.”

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