The ship recycling business is in a slight upswing due to sustained demand for steel in South East Asia , according to a Dubai-based shipping industry expert.
Ship yards in the UAE are also expanding their business models and recycling will make foray into the country in near future as Abu Dhabi
"The upswing in ship recycling business is mainly driven by weak global growth and falling freight rates while continued growth in South East Asia , which sustained demand for steel, buoyed the steel prices. This plays into the price for recycled steel that drives the price which shipbreakers pay for demolition ships, Mohammad Tahir Lakhani, Managing director of Dubai Trading Agency, told Khaleej Times ahead of TradeWinds Ship Recycling Forum, which started on Tuesday. The two-day event at Jumeirah Emirates Towers in Dubai will take a reality check on the industry and deliver the practical guidance, political context and the vital contacts to navigate the way through the scrapping process.
Dubai Trading Agency is the principal sponsor of the forum organised by TradeWinds weekly shipping newspaper published from Norway Dubai
Leading speakers and panelists along with more than 150 participating delegates will discuss environment issues, green recycling and better environment, among other topics. The forum will be chaired by the Head, Marine Pollution Prevention and Ship Recycling Section, International Maritime Organisation, while the DG environment of EU will be attending for the first time.
Tahir said that selling a ship for scrap is rarely straightforward but is now a legal and public relations minefield. A small but increasing number of ship owners prefer to see their ships dismantled in so-called 'green' facilities where waste is handled in an environmentally sound matter and workers are properly equipped.
Some cash buyers are even offering to supervise the preparation and recycling process according to the Hong Kong Convention.
But while a few ship owners take interest on the ground at the recycling facility, the vast majority still prioritise obtaining the best price, he said. Tahir said that growth in global shipping in the early part of the decade led many ship owners to decide to increase their fleet sizes, and the order books for new ships grew dramatically, supported by healthy lending from
financial institutions.
The lead time for new builds can be up to 3-4 years, so shipping companies were ordering in 2006 or 2007 (at the peak of the last shipping cycle) for delivery only in 2010 or 2011, he said.
Obviously, Tahir said that when the bottom fell out of the shipping market in 2008-09, shipping companies found that they had way too much capacity. Where they could, they cancelled new-build orders. But in many cases, since the deals were financed and locked in, it was not possible to stop the process. Many of these new builds are now coming on stream.
So, he said that a shipping company faced with too much capacity is forced to sell its older ships, mostly for scrapping. So, a ship demolition is building as fleets are re-adjusted. "With slower, but sustained, economic growth in South East Asia and the Indian subcontinent, there is strongish demand for these ships, and the scrapping market should remain healthy for the next several years," he stressed.
Tahir said that ship recycling doesn't have a direct impact on the Gulf for the obvious reason that it cannot physically be done here (using the Subcontinental model of beaching). Also, it is now fraught with environmental issues which would not allow it to develop here.
However, with the strong focus on the shipping sector, especially in the Vision 2030 Development Plan in Abu Dhabi , there would be a place for ship recycling, but as it is being carried out in Europe or the US
"My personal view is that more and more shipyards in Europe and US will be developing recycling capabilities to enhance their own business models. Over time, more ship owners will find themselves constrained by public opinion, NGOs, etc., to follow another route for removing old ships from their fleets," Tahir said.
As a case in point, Harland and Wolff in Belfast , owners of the largest dry dock facility in Europe , are actively developing their recycling business, including trying to automate as much of the process as possible to bring the costs down, he said.
He opined that they will never be able to compete directly with the Indian and Pakistani shipbreakers, simply because of labour costs, but they will narrow the gap.
"Therefore, I could easily see ship yards in the UAE also expanding their business models to include recycling. As it becomes a much more regulated industry globally, the UAE would have a chance to capture a piece of that market," Tahir said.
Source: Khaleej Times. 2nd March 2011
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