The ship recycling market showed significant signs of increased supply at the beginning of Q3 2026. Hundreds of commercial ships were preparing to exit the Persian Gulf, and oil prices had sharply declined from previous peaks. However, this unexpected wave did not materialize as favorably as anticipated.
Demand and Supply in the Recycling Market
During this quarter, it was demonstrated that demand from recycling yards alone could not create ship supply. A ship is only considered a serious option for recycling when continuing trade, second-hand sales, or asset retention are less attractive than the recycling option. In early July, GMS estimated that about 550 commercial ships were preparing to exit the Persian Gulf, including nearly 200 cargo ships. It was expected that part of the tonnage waiting would gradually move towards recycling, but by the end of September, recycling buyers were still searching for ships.
Competition in the Ship Recycling Market
The main competition in this market was not between recycling destinations but between the recycling value of an old ship and the value of keeping it in service. Freight revenues consistently strengthened throughout the quarter. For example, in early September, the Baltic Dry Index reached 3488, its strongest level since October 2021. This increase in revenues provides old ships with a commercial reason to remain in service. Particularly in the tanker market, in week 39, GMS reported that some VLCCs earned over one million dollars per day.
This indicates that strong revenues significantly increase the opportunity cost of recycling. Therefore, recycling values can increase significantly without creating an immediate increase in ship supply. The recycling market must first overcome the value of the owner's options.
Throughout the quarter, recycling prices changed significantly. In week 27, GMS announced prices for Bangladesh at around $458 to $463 per ton for cargo ships and $478 to $483 per ton for tankers. In week 39, Pakistan was recognized as the best price in the market at nearly $510 per ton for cargo ships and $530 for tankers.
However, the supply response to these price changes remained limited. This indicates that recycling values are just one of the barriers in owners' decision-making. Freight revenues, second-hand prices, travel opportunities, route risks, and forecasts of the remaining economic lifespan of ships all influence this decision.
In conclusion, the ship recycling market in Q3 2026 faced high demand but insufficient supply. This situation clearly indicates that physical activities in yards do not necessarily mean a strong sales market exists, and there is a need for a more thorough assessment of ship supply trends.
