South Asian ship recycling market struggles amid economic, political uncertainties

This week, South Asia's ship recycling markets are struggling due to bearish sentiment and limited activity. India's steel market remained weak, though there are hopes for recovery after the monsoon. In Bangladesh, severe political and economic challenges have led to market declines. Meanwhile, Pakistan's market was also down, impacted by falling steel prices and low interest in available tonnage.

In Turkiye, both local and imported scrap prices were declining, leading to cautious buying behaviour. Amidst this downturn, India is preparing to vote on a new shipbuilding policy, which includes a Recycling Credit Note Scheme offering a 40% credit on the scrap value for ships dismantled in Indian yards. This policy aims to enhance India's role in global ship recycling and shipbuilding, potentially diverting business from other countries and fostering growth in the industry.

India

India's ship recycling sector continued to struggle through a wet summer slump. Despite firm freight rates driven by the Middle East crisis, ship owners were not recognising how much ship recycling prices have dropped from earlier peaks. Prices are expected to keep falling into early September, although they remain at or above $5/light displacement tonnage (LDT).

During the Indian prime minister's trip to Ukraine, Indian steel plate prices showed little change, ending the week at about $486/tonne (t). Prices have dropped by about USD 60/LDT over recent weeks, keeping offers for dry bulk vessels below $500/LDT. The Indian Rupee (INR) briefly reached a record low of INR 84.015 against the U.S. Dollar (USD), highlighting the strain on India's economy since the recent elections and budget.

Despite these challenges, Alang's waterfront remained active, with five vessels arriving or being delivered this week. However, it is uncertain how long Alang can sustain itself with minimal tonnage. The looming threat of regional conflict in the Middle East could further impact the market, leaving Indian ship recyclers in need of more ships. As Gadani recyclers lower their prices, Indian buyers may benefit if they can secure a few ships each week.

The total tonnage received at Alang port this week was 19,831 LDT.

Pakistan

The situation in Pakistan's ship recycling sector highlighted the broader challenges the industry is facing due to selective purchasing behaviours and a disconnect from prevailing market conditions. The fact that local recyclers are lowering their offers due to dissatisfaction with the types of incoming ships, such as reefers and trawlers, is indicative of a shift in market dynamics. This reluctance to engage in negotiations suggests that recyclers are struggling to balance quality requirements with the need to secure sufficient tonnage.

The steady Pakistani Rupee (PKR), combined with the decline in local steel plate prices by around $7/t due to cheaper imports from China, added another layer of complexity. While the influx of cheaper Chinese steel products has pressured local prices, the situation could worsen without protective tariffs to shield domestic businesses from this external competition.

The decrease in fresh vessels arriving at Pakistan's recycling yards, with total tonnage at Gadani port reported at just 15,435 LDT for the week. This has suggested a cautious approach by buyers. This hesitancy may be driven by concerns over falling steel prices, low demand, and overall economic uncertainty. If the current trend continues, with few new candidates for recycling and declining arrivals at ports, the sector may face further difficulties in the near future. Overall, the ship recycling industry in Pakistan seems to be navigating a challenging environment, characterised by selective purchasing, pressure from imports, and a lack of fresh tonnage, all against a backdrop of economic uncertainty.

Bangladesh

The crisis has strained Bangladesh's financial resources, with the taka dropping nearly 1.65% against the USD due to new Central Bank policies. Despite these issues, non-resident Bangladeshi citizens have set new records for single-day remittances, helping to support the government amid the ongoing monsoon crisis. Steel plate prices have remained steady at around $555/t, but the domestic ship recycling industry has been hit hard.

The domestic ship recycling industry has been heavily impacted by the crisis. With declining domestic fundamentals and rising floodwaters, recyclers faced significant challenges, including a lack of new business and difficulties in opening fresh letters of credit (LCs). Despite these issues, the Chattogram waterfront continued to receive a substantial number of ships, reflecting ongoing interest despite the market instability. The overall market remained uncertain, with a daily decline in prices and a likely prolonged period of instability due to ongoing political and economic challenges.

The total tonnage received at Chattogram port this week was 34,247 LDT.