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South Asian ship recycling markets struggle amid global instability, financial turmoil

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Ship Breaking

BigMint Bureau

149 Reads

17 Sep 2024, 13:00 IST

South Asian ship recycling markets struggle amid global instability, financial turmoil

The South Asian ship-breaking market is currently facing significant challenges due to a combination of global instability and financial turmoil. Geopolitical conflicts, such as tensions in the Middle East, have caused widespread market volatility, which has directly impacted the ship-breaking industry. Financial instability, characterised by fluctuations in the US dollar and sharp declines in local steel prices in countries like India, Pakistan, and Turkiye, is further exacerbating the situation.

These price drops are impacting the profitability of ship recycling, as reduced steel prices make it less attractive for ship owners and cash buyers to engage in transactions. The lack of interest from these stakeholders has left the market in a tight and challenging position. Consequently, recyclers are finding it difficult to maintain operations, and the sector is experiencing a standstill with very few transactions. Potential buyers are adopting a cautious approach, waiting for more stability before making any commitments.

India

India's ship recycling market continues to face significant challenges, exacerbated by domestic and international factors. The ongoing electoral period and an unfavorable financial year 2024-25 (FY24-FY25) budget have adversely impacted infrastructure projects, adding further strain to the ship-breaking sector. This struggle is evident in the substantial decline in Alang steel plate prices, which have dropped by over $65/tonne (t) since June, now hovering around $500/light displacement ton (LDT).

Since March-April, the market has seen persistent difficulties with no immediate signs of recovery. The arrival rate at local ports has remained low, with only about one vessel received per week. Although this has kept Alang yards somewhat active, the overall market environment remains challenging.

A shortage of ship steel is also contributing to the sector's woes, exacerbated by the influx of cheaper Chinese steel imports. This influx has pushed local steel plate prices down by over $10/t this week, further complicating the resale of ship steel for profit. Local steel plate prices currently stand at around $474/t, raising concerns about the sector's economic viability.

In an attempt to provide some relief, the Indian finance ministry has announced a 30% tariff on Chinese steel billets. While this measure could offer temporary respite, the ship recycling sector has been relatively stagnant over the past 4-5 quarters, with many yards either operating at reduced capacity or completely shutting down. According to a market participant, "Only about 20% of the yards are fully operational, as the business has become unprofitable."

This week's total tonnage received at Alang Port was 17,167 LDT, reflecting the continued struggles faced by the ship-breaking industry in India.

Pakistan

Pakistan's ship recycling market continues to face pressure, driven by an influx of cheaper Chinese steel, which has prompted recyclers to lower their prices further. As a result, profit margins for buyers in Gadani have been squeezed by an additional $10/t, with local steel prices now standing at $680/t. One market participant commented, "To address this issue, Pakistan needs to impose tariffs on cheap Chinese steel."

Currently, Pakistani ship recyclers are reluctant to purchase new ships, leading to empty ports for the second consecutive week. While there is some interest in recycling, the supply of ships is expected to remain constrained into the next year due to strong freight markets and worsening global conflicts, which diminish the likelihood of a significant increase in ships available for recycling.

Despite a stable US dollar at around PKR 278 and improving financing conditions, Pakistani recyclers are focusing more on smaller ships. The weak market fundamentals, combined with the risks associated with global conflict, make long-term loans for larger ships too risky. High global interest rates further contribute to the appeal of smaller ships, prompting recyclers to concentrate on these smaller units for the remainder of the year.

Reflecting the market's struggles, no tonnage was received at Gadani Port in the previous week, highlighting the ongoing challenges in Pakistan's ship recycling sector.

Bangladesh

Bangladesh's ship recycling market is grappling with significant instability due to ongoing floods and ineffective governance, which have compounded challenges for the industry. Recent environmental regulations now require ships arriving in Chattogram for recycling to possess an approved Inventory of Hazardous Materials (IHM) certification, ensuring adherence to safety standards. In addition, the Bangladesh Ship Breakers and Recyclers Association (BSBRA) has mandated that all incoming ships undergo ballast weight surveys before cutting, a measure designed to ensure that recycling tonnage calculations are based on the vessel's actual weight, excluding ballast.

The market is also experiencing lower prices due to a shortage of ships available for recycling. Heavy monsoon rains have severely disrupted steel cutting and processing activities, with flooded highways impeding the transport of recycled steel. This situation has led to overcrowded yards and an increasing number of uncut ships.

Despite recent stabilisation in the Bangladeshi taka and steel plate prices, which has led to some renewed ship breaking activity, including a few deliveries and a new arrival, the sector remains cautiously optimistic. As the monsoon season approaches its end, there is hope for improved conditions that could bring some relief to the industry.

This week, the total tonnage received at Chattogram Port was 20,372 LDT, reflecting the market's tentative steps toward recovery amid ongoing challenges.