Global ship-breaking tonnage drops 20% y-o-y in CY'24. Will the tide turn in CY'25?

• Around 30% drop in tonnage seen in Alang's shipyards
  
  
• Inflation, currency depreciation impact Bangladesh, Pakistan
  
  
• Further churn in sector likely with HKC coming into effect in mid-CY'25
  
  

Morning Brief: The global ship-breaking industry faced significant challenges in calendar year 2024 (CY'24), with total recycling tonnage dropping by 19% y-o-y. According to BigMint data, the industry processed 1.83 million light displacement tonnage (LDT) compared to 2.26 million LDT in CY'23.

The number of vessels dismantled also saw a sharp decline, with only 268 units recycled in CY'24, down 19% from 330 units in the previous year.

South Asia's ship-breaking trends

Bangladesh

Bangladesh retained its position as the top global market for ship-breaking tonnage in 2024, with a share of over 46%. However, total tonnage fell over 14%, reaching 851,285 LDT compared to 993,614 LDT in CY'23. The number of vessels dismantled also dropped by 21% y-o-y, with 137 units recycled. Challenges such as the absence of Hong Kong Convention (HKC) compliance and political instability, which disrupted government projects, contributed to the decline in activity.

India

India experienced a significant drop in ship dismantling activity in CY'24. Total tonnage declined 29% to 871,845 LDT compared to 1,100,480 LDT in CY'23. Similarly, the number of ships dismantled fell by 20%, with only 106 units processed versus 132 in the previous year.

Pakistan

In contrast to its neighbours, Pakistan showed a remarkable recovery in ship-breaking activity. The total tonnage processed rose by 19% y-o-y, reaching 206,388 LDT in CY'24 compared to 173,944 LDT in CY'23. The number of vessels recycled rose by an impressive 56%, with 25 units dismantled versus 16 in the previous year.

Declining price trajectory

Containers

Bangladesh: Container prices fell by 8% y-o-y, from $579/LDT in CY'23 to $532/LDT in CY'24.

India: A similar trend was observed in India, where container prices dropped 8% from $565/LDT to $522/LDT in CY'24.

Pakistan: Container prices in Pakistan decreased by 6%, from $550/LDT in CY'23 to $519/LDT in CY'24.

Tankers

Bangladesh: Tanker prices in Bangladesh saw a more modest decline of 2% from $575/LDT to $561/LDT.

India: In India, tanker prices decreased by 7% from $546/LDT in CY'23 to $507/LDT in CY'24.

Pakistan: Tanker prices in Pakistan dropped 5% from $533/LDT to $506/LDT.

Bangladesh witnessed the highest drop in container prices (8%), but for tankers, it saw a marginal decline (2%) compared to India and Pakistan.

Factors impacting markets

India: Alang, like the rest of the sub-continent'[s ship recycling industry, faced a challenging year in 2024 marked by declining unit prices, softening of domestic steel prices due to high imports, slower GDP growth and a depreciating Rupee. It saw the lowest recycling volumes in over a decade, creating a buyer-dominated market. This led ship owners and cash buyers to accept the realities of vessel prices and increased activity has been seen at Alang's waterfront with the beginning of the New Year.

Concerns relating to steel imports at predatory prices have given way to safeguard investigations which will potentially benefit Alang scrap ship recyclers. However, it might also redistribute cheaper inventories, impacting tonnage supply for recycling.

Steel plate prices dropped by over $150/LDT, which impacted vessel prices. Ship owners and cash buyers took time to adjust, with concerns over tonnage supply, the US Dollar and overall steel prices. The Rupee has fallen to historic lows against the US Dollar.

Pakistan: Pakistan faced significant economic challenges throughout 2024, with high inflation, a collapsing PKR, shortage of USD, and restricted availability of Letters of Credit (LCs) for local recyclers with government restrictions on issuance of large USD value LCs on non-essential domestic expenses. These issues led to the country experiencing the second-lowest volume of tonnage recycled over the last decade.

Bangladesh: Bangladesh faced a transformative year in 2024, marked by economic instability and political challenges affecting the ship recycling sector. Initially resisting IMF assistance, the country eventually applied for a bailout package. Poor fiscal policies, rising interest rates, and a decline in exports worsened the situation. Violent civil and political outbreaks and severe weather disrupted domestic construction projects.

Despite these challenges, optimism remains as the FY 2025-2026 budget promises greater economic stability, focusing on health and education. However, curtailing major construction projects may impact the ship recycling industry, especially in Chattogram.

Weak demand for recycled ship steel from local mills led to a decline in steel plate prices, reaching USD 521/LDT by the year-end. The Bangladeshi Taka also depreciated against the US Dollar, further impacting pricing.

The local recyclers struggled with low demand and only a small tanker was welcomed at the waterfront in the final weeks of the year, reflecting the state of affairs in Bangladesh's ship-breaking sector.

Outlook

Pakistan: With Pakistan's ship recycling sector lagging behind Bangladesh and India in terms of demand, pricing, and facility upgrades (in preparation for the HKC coming into effect from mid-2025), the future of Gadani's ship recycling market remains uncertain. The lack of yard upgrades and weak economic fundamentals suggest that the market may continue to face significant challenges in the coming year.

India: Demand for scrap ships and prices in CY'25 will depend largely on domestic steel market sentiments, which may get a boost post implementation of proposed safeguard duty on steel imports. Most yards in Alang are already HKC approved, positioning India well to handle the expected influx of tonnage. Development of new yards in other parts of the country will also propel the sector forward.

Bangladesh: As the deadline for compliance with the HKC approaches, yard owners must step up gear for requisite upgrades and compliances. Only four ship yards in Chattogram have received the NK HKC accreditation. However, proposals to raise domestic value added tax (VAT) for repayment of IMF loan may further stoke inflation and hurt steel market sentiments and prices.