19 August 2011

The Economics of ship dismantling, ship recycling & ship breaking:

Why Ship-owners Sell Ships for Ship dismantling, ship breaking and ship recycling?

When the maintenance costs of the vessel start to exceed possible revenue, or when the vessel has become unattractive for the second-hand market.

How Ships are sold for Ship dismantling, ship breaking and ship recycling?

Ship-owners who have decided to end the economic life of a vessel will look for a cash buyer.  The cash buyer will either be a dedicated broker or the scrap yard operator himself. Typically, the ship will take cargo for a final voyage to the area where the scrap yard is located. After completion of this voyage, the ship will be brought, under its own power, to the scrap yard where it will be dismantled. The cash buyer pays a price in US$ per light displacement ton (ldt), which is roughly equivalent to the steel weight of the ship.

What is normal price at Ships are sold?

For years the price has been around 150 US$/ldt (with lows around 100 US$/ldt and highs around 200 US$/ldt), but recently the strong demand for steel scrap in China and the low supply of ships have driven prices up to record levels of nearly 500 US$/ldt for average vessels and more for particularly valuable ones.

What affects Shipbreaking Industry Most?

Freight market, the number of ships available for scrapping depends on conditions on the freight market. If ships can still earn good money, owners will not decide to send the ship for scrapping. In the past two years, scrapping volumes were very low due to a booming and profitable freight market.

The large majority of ships for scrapping will have to come from the deep sea merchant fleet and will be mainly tankers and bulk carriers (which are the “volume” segments). Other market segments, such as warships, inland waterways vessels and offshore structures, are of limited size and availability and so can hardly provide a steady stream of material for large-scale recycling. The operator of a modern recycling facility will therefore have difficulty building a business model that fully covers its amortization costs.

What is life span of normal ship?

Ships are individual constructions with a long life-cycle and will have undergone many repairs and maintenance in their 20-30 years of operation. The ships currently heading for the scrap yards were built in the 1970s using materials that are no longer used today (e.g. asbestos).

What is dismantling capacity in the EU?

There are facilities for larger ships mainly in Belgium, Italy and the Netherlands, with a combined capacity of about 230,000 ldt/year, and a multitude of smaller facilities for fishing vessels and other small craft in most other maritime Member States. Taken together, the existing capacity in the EU for ship dismantling may be estimated at approximately 500,000 ldt per year. The EU neighbouring Turkey  having 20 dismantling yards on the shore of Aliaga (near Izmir) have a joint capacity of approximately 1 million tons per year. (As on 2007).

Source: Scrap Ship Breaking

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