Strong demand in the freight markets kept older vessels operating through the third quarter, even as scrap prices rose and ship recyclers sought more ships, according to a recent market analysis by GMS, the largest cash buyer of ships for recycling in the world.
The ship recycling market seemed poised for an increase in demolition activity at the start of the quarter. GMS reported tracking about 550 merchant ships, including around 200 bulk carriers, ready to leave the Gulf in early July, and recycling yards in major South Asian markets had both the capacity and interest to take in more tonnage.
However, the expected influx of ships did not occur.
Instead, the strong freight markets, healthy values in the secondhand market, and ongoing operational opportunities provided ship owners little reason to sell their vessels for recycling.
“The quarter ended with a market that had demand, but not enough willing sellers,” GMS noted.
The report emphasizes an important detail in the recycling market: yards do not only compete with each other for ships. They also contend against the potential earnings that owners can gain by keeping their vessels in service.
This situation became more challenging in the third quarter.
By early September, the Baltic Dry Index rose to 3,488, the highest level since October 2021, giving older dry bulk ships a strong reason to keep trading. The tanker market became even more lucrative later in the quarter, with GMS reporting that some Very Large Crude Carriers (VLCCs) were earning over $1 million per day by Week 39.
At these rates, even significantly higher recycling prices struggled to convince owners to scrap vessels that could still generate substantial income.
Despite this, recycling prices did rise significantly during the quarter.
At the start of the third quarter, Bangladesh led the market with dry bulk values between $458 and $463 per light displacement ton (LDT), and tanker values from $478 to $483 per LDT.
By Week 39, Pakistan took the top spot in the South Asian market, with dry bulk values around $510 per LDT and tanker values about $530 per LDT. Bangladesh followed closely with values of approximately $500 and $520 per LDT, while India had around $465 per LDT for dry tonnage and $485 for tankers.
Even with these increases, GMS stated that the supply of fresh vessels remained limited.
The report explains that owners were considering recycling offers alongside a much broader range of alternatives, including freight income, chances for secondhand sales, the remaining lifespan of vessels, route risks, and compliance costs.
Pakistan demonstrated how scarcity influenced the market.
Recyclers in Gadani entered the quarter behind those in Bangladesh but gradually increased their bids as available tonnage dwindled. By Week 34, GMS indicated bids had risen to around $515 to $520 per LDT for dry bulkers and $535 to $540 for tankers.
These increases occurred before a sufficient number of vessels had reached the yards, leading recyclers to effectively compete against each other for a limited pool of future candidates. Prices later softened as previously acquired vessels arrived, satisfying some immediate demand, although Pakistan ended the quarter with the highest prices.
In India, GMS noted the emergence of two distinct recycling markets.
While Alang typically lagged behind Pakistan and Bangladesh for conventional steel tonnage, specialized vessels—such as reefers, gas carriers, passenger ships, and those with significant non-ferrous content—tended to attract a better buying response.
Regulatory and compliance factors are becoming increasingly important in the valuation process. GMS observed that aspects like sanctions exposure, ownership history, registries, and past trading activity are now key in determining which facilities can realistically handle a vessel and what value can ultimately be achieved.
This means that the highest recycling offer does not always equate to the best deal.
The larger concern is what will happen when freight markets start to decline.
GMS anticipates that recycling supply will remain tight in the fourth quarter as long as vessel earnings stay strong, especially for ships that continue to find profitable work near the Strait of Hormuz.
However, postponing recycling decisions may result in a larger pool of aging vessels that will eventually need to be retired.
If freight earnings normalize, secondhand liquidity decreases, or job opportunities shrink, GMS warns that some of this deferred supply could enter the recycling markets much more rapidly.
For now, ship recyclers find themselves in a unique situation: high demand, rising prices, and an insufficient number of ships available for purchase.
“The recycling yards were ready to buy,” GMS concluded. “Most of the ships still had other places to go.”