Shipping Expert On Current Situation: 'Holy Scrap!'

Deutsche Bank said total dry bulk capacity declined by almost 1 million tons (net) last week as the pace of deliveries slowed and scrapping remained elevated. The weekly decline is the first of the year and marks an important psychological milestone given stubbornly persistent supply growth in the face of historically weak rates.

The data holds significance for carriers such as Teekay Tankers Ltd. (NYSE: TNK) and Euronav NV Ordinary Shares (NYSE: EURN), which is engaged in the transportation and storage of crude oil and petroleum products.

"We estimate 16 ships were sold for scrap last week totaling 1.6M tons (avg. 100k tons per vessel). This more than offset 9 new deliveries that added 730k tons to the fleet (avg size 81k), translating to a net reduction of 7 vessels (~1M tons)," analyst Amit Mehrotra wrote in a note.

Mehrotra estimates 100 vessels have been sold for scrap so far this year, totaling 8.5 million tons of capacity which translates to 8 percent of the total fleet.

The analyst continues to expect net fleet growth to be negative week-on-week in future periods as deliveries slow from seasonally strong January activity, the order book burns off, and scrapping stays elevated.

With the vast majority of orders placed with Chinese ship yards, the current market provides incentive (and maybe even increased scope) for owners to more aggressively pursue cancellations ahead of keel laying (a formal recognition of the start of a ship's construction), Mehrotra added.