The Chinese government has
announced a long-awaited scrapping subsidy plan that aims to boost the
country’s ailing shipbuilding and shipping industries.
The plan, drafted by four
ministerial level departments, applies only to China-flagged tonnage that is
demolished at domestic yards in North and South China. Foreign flagged vessels
and owners are exempt from the policy.
The key highlights of the
subsidies include a premium of RMB750 per gt ($124 per gt) to be provided to
shipowners and applied to any Chinese flagged vessels that are recycled
locally. The same level of subsidy to be applied on any newbuilding (from
domestic owners to be Chinese flagged) that is built in China.
This subsidy is only
applicable if the shipowner has scrapped a similar sized vessel over the same
time period at a domestic recycling yard. The scheme will include vessels
delivered to Chinese yards during fiscal 2013, and will last through fiscal
2015.
The subsidies have their
share of limitations. One shortcoming is that the procedure for Chinese owners
and Chinese flagged vessels seeking to make full use of the subsidies is
expensive and complicated.
Domestic companies are
first required to obtain the necessary approvals or licenses from the Chinese
Communications Ministry. Thereafter, they are required to set up an operating
company in mainland China, and are required to pay a tax rate of 25% on the
transaction.
There is an age limitation
for vessels to be Chinese flagged, viz. 18 years for containers and 20 years
for bulk carriers.
The immediate beneficiary
of the above subsidies appeared to be the major state-run Chinese companies,
which had committed some 40 vessels to Chinese yards during 2013. Additionally,
at least one VLCC from Chinese owners has been reported sold to a local yard.
At the time of filing this
report, only five yards in North and South China had made the cut. However,
several more (from North China) are expected to obtain the necessary approvals
in the near future.
If Chinese owners and
yards can sift through all these complicated rules and lay their hands on the
subsidies, it could mean that fewer Chinese-flagged vessels would be making
their final journey towards the Indian sub-continent.
Even before
the Chinese government announcement of subsidies for shipbreaking, the
recycling industry in India had turned cautious, with both steel prices and
currency fluctuating. This had led to a majority of end buyers choosing not to
make any offers at all, and has resulted in nearly half of junk shipyards in
Alang being empty.
There were far fewer
bulkers, tankers, reefers (due to the high season) or even MPP / tweens /
general cargo units for sale due to improving freight rates. Container rates,
though, remain poor and certain sizes and types (coupled with the new eco
designs) are swiftly making vast swathes of this sector virtually redundant.
There have been no recent
market sales in India, Pakistan and China, though a greater number of container
vessels have unsurprisingly become available for sale.
“It is now increasingly becoming the task of
the cash buyer to find the hot end buyer in Alang for any given tonnage, and
work with him to conclusion, rather than risk speculating and losing out
heavily,” said US-based cash buyer GMS.
Meanwhile, elections have
been announced in Bangladesh for 5 January 2014, as a result of which, a select
group of end buyers has been gambling on the fact that the continued political
instability, strikes and blockades could contribute to a rise in steel prices,
and are stockpiling their yards accordingly.
Source: sea
trade global. 13 December 2013
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