04 August 2014

Shipbreaking industry shifted from Steel to Shipping Ministry:

The shipbreaking industry, so far under the Steel Ministry, has now come under the control of the Shipping Ministry. This will help the sector attract more ships to Indian yards, including the world’s largest — Alang in Gujarat — and get marketed well at international shipping forums, according to sources in the Shipping Ministry.

Logically, the shipbreaking industry should be with the Steel Ministry, as once the ship beaches there is no role for the Shipping Ministry. However, to bring in the ships, the role of the Shipping Ministry is vital in terms of regulations and sops, according to Nitin Kanakiya, Secretary, Ship Recycling Industries Association (India).

The industry provides direct employment to nearly 40,000 people and earns annual revenues of around ₹2,500 crore. However, it is not in a healthy state due to competition from neighbouring countries and ‘bad press’. “We need good visibility and the shipping fraternity can provide this at international forums,” Kanakiya told BusinessLine.

The first thing that the Shipping Ministry did was to constitute an inter-ministerial shipbreaking scrap committee. It notified it on July 22 to consider all issues related to the industry.

The ministry plans to seek the help of Japan International Cooperation Agency to upgrade the existing infrastructure at Alang. A plan will be prepared to modernise the Darukhana shipbreaking facility in Mumbai port, sources said.

This is one of the 15 major projects taken up under the ministry’s comprehensive action plan.

The ministry’s action plan follows Finance Minister Arun Jaitley’s announcement in the Budget rationalising the duty on shipbreaking scrap and melting scrap of iron or steel by reducing the basic Customs duty on ships imported for breaking, from 5 per cent to 2.5 per cent.

India’s ship-breakers have borne forex losses of over ₹1,000 crore in the past two fiscals. The Budget move to halve Customs duty to 2.5 per cent on scrap-vessel imports and a much more stable rupee in the current fiscal, ‘come as manna,’ said Crisil, an analytical company.

Collectively, they are likely to add over ₹100 crore or well over a percentage point to the industry’s operating profitability. The duty cut also puts shipbreakers on a par with their primary — and nearly three times bigger — competitor, the molten-scrap importers, who have enjoyed 2.5 per cent import duty for a long time.

The duty cut, however, is not expected to significantly increase business volumes for these secondary sources of steel. But for shipbreakers, profitability and competitiveness, which had eroded as a plunging rupee last fiscal helped Bangladeshi, Pakistani and Chinese rivals do better, will improve, said Crisil.

Price differential
Last fiscal also saw fewer scrap vessels being imported, at 298, or 24 per cent less than the 390 in fiscal 2013, as economic slowdown subdued domestic demand for steel. Also, the rupee’s 20 per cent fall meant the average scrap-purchase price differential between Indian and Bangladeshi bidders narrowed to just $10-15 per light displacement tonne (LDT — refers to the weight of a ship without load) in June 2014, and nearly level with the Pakistanis.

The duty cut translates into gross savings of about $15/LDT. Crisil believes this will help ship-breakers add to their bidding price, and help widen the differential versus rivals once again. And, if demand and the rupee stay stable, the number of scrap ships imported could rise to over 320 in the current fiscal, leading to greater activity in the yards of Alang. It will also be a positive for local employment, Crisil said.

Source: the hindu businessline. 3 August 2014

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