The Ships Stayed Trading: What Q3 2026 Revealed about the Ship Recycling Market

In the third quarter of 2026, the ship recycling market appeared to be on the brink of a significant increase in supply. Many merchant vessels were preparing to leave the Gulf as oil prices fell and freight premiums eased, while recycling yards had available capacity and were eager to buy. However, the anticipated wave of recycling did not materialize as expected. Instead, the quarter served as a reminder that demand from recycling yards alone does not create vessel supply.

At the start of July, Global Maritime Surveyors (GMS) estimated that 550 merchant vessels were set to exit the Gulf, including around 200 bulk carriers. These vessels were expected to gradually move towards recycling as trading conditions normalized. By late September, recycling buyers were still seeking ships, with previously secured vessels continuing to arrive at Chattogram, Alang, and Gadani.

However, securing new market sales had become increasingly challenging. Tanker earnings had significantly strengthened, dry freight remained healthy, and second-hand alternatives were still available.

The most significant competition was not between recycling destinations, such as Bangladesh, Pakistan, India, and Turkey. The more critical competition was often between the recycling value of an aging vessel and the value of keeping it in service. Freight rates had risen repeatedly throughout the quarter, with the Baltic Dry Index reaching a peak of 3,488 in early September, its strongest level since October 2021. Tanker employment also reached over $1 million per day by Week 39.

This quarter highlighted that higher recycling prices did not necessarily lead to a proportional supply response. The rise in headline recycling values did not translate into a corresponding increase in vessel supply. Various factors, including freight earnings, second-hand prices, voyage opportunities, route risk, compliance exposure, and the expected remaining economic life of the vessel, influenced whether an owner was willing to exit their vessel.

Bangladesh showed the impact of operational conditions on recycling supply. The Chattogram yard experienced heavy rainfall and flooding, which disrupted yard operations and beaching activity. Despite the yard's strong commercial position with buyer appetite, financing capacity, and competitive pricing, Q3 demonstrated how operational issues can impede even a favorable market setup.

Heavy rainfall and flooding moved beyond normal seasonal inconveniences, directly affecting yard operations and beaching activity. As conditions improved towards the end of July, previously delayed vessels began moving through the beaching windows, and physical activity recovered. However, the sales market did not recover at the same pace, as demand had rebuilt while supply had not responded sufficiently.

This underscores that a busy recycling waterfront does not necessarily indicate a robust fresh-sales market. The real question is whether new vessels are being committed quickly enough to replenish the pipeline. During much of Q3, they were not.