Scrap Value: the Shipping Floor
Demolition value as LDT times scrap price, base-case vs spot marks, Taylor Maritime accounting policy, and where scrap binds under broker NAV.
Educational analysis for professional use. This guide is not investment advice or a recommendation to buy or sell any security, and it is not personalised.
Scrap Is the Distress Bound Under NAV
Every ship has a floor under its value, because a breaker will always buy it for the steel. That demolition value is the ship’s lightweight tonnage (LDT), the weight of the empty ship, times the scrap price per LDT.
Broker fair market value (FMV) prices the ship as a working asset and normally sits well above scrap. When freight collapses, FMV falls toward the steel price, so conservative net asset value (NAV) builds use scrap as each vessel’s lower bound.
Two Methodologies You Will See
Accountants and analysts both use scrap, but only the analysts’ version is a floor.
Taylor Maritime’s accounts (annual report to 31 March 2025) depreciate vessels straight-line over 25 years to a residual of lightweight tonnage × 15-year historical average scrap price per ton. That is a smoothed accounting number rather than a live demolition quote.
The industry method, published by VesselsValue, is LDT × the Subcontinent scrap steel price (USD/LDT), the price South Asian breaking yards pay. A January 2022 VesselsValue article priced an example VLCC (very large crude carrier, the biggest tanker class) of 38,968 LDT at $555/LDT, the 2021 Bangladesh average. These guides use lower marks:
| Mark | $/LDT |
|---|---|
| Base case (India bulker indicative) | $350 |
| Spot, March 2026 | $395 |
Worked examples in this guide use demonstration prices; check current market prices when modelling.
The base case sits below spot so a strong steel market does not flatter the floor.
Where Scrap Sits in the NAV Stack
Scrap only binds at the bottom of the cycle.
Broker FMV (charter-free, two-broker mean)
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Normal mid-cycle NAV
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Trough: FMV approaches scrap
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Demolition floor = LDT × scrap mark (base case)At mid-cycle, FMV on a 7.5-year-old eco (fuel-efficient) VLCC, the average age of Frontline’s 80 owned vessels, sits far above scrap. In a trough, analysts cut the broker marks and check whether equity still clears the fleet’s combined demolition value.
Book values will not locate the floor. Star Bulk’s $2,875m vessel book (31 December 2025) is a carrying value; the floor needs each ship’s LDT and a broker mark. Frontline carries its ships at $4,912m, far above a young fleet’s steel value, and in a sustained depression it is their market value that would fall toward scrap.
Scrap does not replace cash breakeven analysis. Breakeven measures earnings, scrap what the assets fetch in liquidation, and a trough screen needs both.
Worked Mini-Example: Single VLCC Demolition Value
A VLCC’s steel is a small fraction of its mid-cycle value, but a hard bottom in a trough. On the example hull at the base-case mark:
| Input | Value |
|---|---|
| LDT | 38,968 |
| Scrap mark | $350/LDT |
| Demolition value | 38,968 × $350 = $13.64m |
If a broker marks that hull at $80m at mid-cycle, scrap is irrelevant to NAV. At $12m in a trough, floor it at $13.64m: a going-concern mark below the steel value needs a specific distress reason.
For a fleet, sum LDT × the scrap mark and set the total against debt. Frontline’s net debt of ~$2,816m (31 December 2025) has to be repaid before any scrap value reaches shareholders.
Dry Bulk vs Tanker Context
The formula is the same in every segment. How fast values fall toward it depends on the freight market, and second-hand liquidity differs too. Values for Star Bulk’s 136 owned dry bulk vessels (FY2025 year-end; 143 pro-forma with newbuilds) move with the Capesize and smaller-class indices; Capesizes are the largest dry bulk carriers. Frontline’s crude tankers move with the TD3C and TD20 route rates, the Baltic Exchange benchmarks for VLCC and Suezmax voyage earnings.
Each vessel is valued on charter income, running costs and scrap over its remaining life, summed to a fleet NAV net of debt, stressed through a freight downturn.
The Excel model is the primer's fleet NAV build live across 11 sheets: each vessel valued on its cash flows over the life it has left plus scrap, fleet NAV to equity for a spot tanker owner and a contracted lessor, an implied-multiple cross-check, a built cash breakeven, a freight-trough scenario and sensitivity grids. Change the charter rate, running costs, fleet age or debt and the NAV moves.
Frequently Asked Questions
- How is ship scrap value calculated?
- Industry demolition value is lightweight tonnage (LDT, the weight of the empty ship, mostly steel) times the Subcontinent scrap steel price in USD per LDT, the method VesselsValue publishes. The NAV builds in these guides use a base-case scrap mark of $350/LDT (India bulker indicative), below the ~$395/LDT spot level of March 2026.
- When does scrap value bind in a NAV model?
- In distress. When freight markets collapse and second-hand prices fall, demolition value limits how low a vessel's market value can go. In normal and mid-cycle markets broker FMV sits above scrap, so the floor matters for trough stress tests and liquidation scenarios.
- Is accounting residual value the same as demolition value?
- No. Taylor Maritime depreciates straight-line over 25 years to a residual of lightweight tonnage times a 15-year historical average scrap price per ton. That is an accounting policy. An analyst demolition floor uses current LDT times a current scrap mark ($350/LDT base case).
- Does scrap floor replace broker NAV?
- No. Broker NAV values ships as going concerns. Scrap is the lower bound under each vessel: in a conservative build, NAV per ship is the higher of broker FMV (charter-free) and LDT times the scrap mark, unless you are modelling liquidation.