China’s shipbreaking industry is going through a loss-making year and the outlook remains grim due mainly to declining steel prices and high inventory, according to the ministry of industry and information technology (MIIT).
The ministry revealed that domestic scrap prices slid to an average of RMB1,946.3 ($317) per ldt in June, down by 5.6% compared to the price in January this year and a decrease of 12.1% year-on-year.
The government also reported that domestic shipbreaking enterprises generated a combined first half revenue of approximately RMB2.2bn and operating loss of more than RMB200m.
Excessive domestic steel production and the fall in import prices of iron ore, coupled with rising labour and operating costs, have all conspired to put internal and external pressures on the shipbreaking industry, the ministry added.
Zhu Jiaobao, general manager of Zhoushan Changhong International Industry Pack, was reported saying: “On one hand, the cost of environmental protection and taxes are raising the cost of business; on the other hand, demand for scrap steel has plummeted and inventory is piling up, pushing the entire industry into a loss-making situation.”
China National Shiprecycling Association (CNSA) warned that China’s ship recyclers could undergo “a round of consolidation” as the bigger scrapyards are struggling with low margins while the smaller ones are finding it hard just to maintain their daily operations. Moreover, the smaller yards that typically lack cashflow are not expected to make it through the difficult times.
The association highlighted that during this challenging period, it is urging shipbreaking yards to focus on internal reorganisation, improving workplace safety and raising environmental standards in order to enhance their competitiveness.
Source: seatrade global. 25 November 2014