A collapse in prices and political pressures are creating problems right across the ship-recycling industry
The global ship-recycling industry is facing a nightmare scenario as low steel-plate demand, falling demolition prices and confusing regulation all threaten to throw the market into chaos.
The year kicked off with prices and recycled-steel demand continuing to slide, at a time when the collapse in the dry bulk shipping market is sending more and more vessels to the torch.
A devaluation of the Indian rupee has compounded the problems, denting breakers’ buying power in the world’s largest demolition country.
“Each day brings a further depression to the market,” broker Clarksons reported in the bleakest assessment of the situation so far.
Scrap prices for tankers and bulkers have slumped by around 15% to $375 per ldt since last year but some observers still feel the market remains overpriced given the low demand for steel plate.
That is likely to mean that the problem of waterfront breakers declining tonnage secured by cash buyers at higher prices, leading to renegotiation, will remain for some time.
Demolition broker Edward Mcilvaney has described a “vast number of sales” being renegotiated or dropped at the peak of the crisis earlier this year. And he suggests there are more high-priced vessels yet to reach the yards.
The breakers are suffering as China’s slower-than-forecast economic growth has led to an excess of steel billets and other products, which are then exported to India and other Asian countries, depressing local demand for steel plate from dismantled ships.
Nitin Kanakiya, honorary secretary of the Ship Recycling Industries Association India (SRIA), says from the breakers’ point of view, the market is still overpriced. “Ship prices are exorbitantly high because of a highly speculated market among the three countries of India, Pakistan and Bangladesh. The market is very dull and not corresponding to the price of ship plates available. Also, imported plates, TMT [thermo-mechanically treated] bars and billets from China and Ukraine, are almost $100 per ton cheaper than domestic materials. So it has become difficult to survive,” he said.
Kanakiya wants to see the gap between ship scrap values and steel prices close but is not optimistic. “We see less chance of recovery in the near future. The revival might take place by end of this year,” he added.
Cash buyer Wirana’s Billu Khetan says he had seen signs that would suggest the market has already bottomed out. “In the past two or three days, we have seen a slight improvement in steel prices and that should translate to better buying prices. Hopefully the decline has stopped,” he said. Such is his confidence that Khetan was willing to wager on prices heading back into the region of $400 per ldt in the coming months.
Anil Sharma, who heads cash buyer Global Marketing Systems (GMS), says he also feels the market is nearing the lowest point and an end to “dumping” by Chinese mills could turn things around quickly.
Healthy 2014 volumes
Prices started to fall at the end of last year but came too late to affect what was another relatively healthy year of demolition volumes.
According to Mcilvaney’s figures, in 2014, some 36.9 million dwt went to the breakers yard compared to 45.2 million dwt in the previous year.
India remained the world’s leading recycling nation, with 300 ships demolished last year. China, thanks largely to a generous domestic scrap-and-build subsidy scheme, broke up 248 vessels. Bangladesh demolished 215 units, Pakistan 113 and Turkey 109.
This year, the widely differing fortunes of the tanker and bulker markets are reflected in breaking volumes.
According to broker Clarksons, the buoyant tanker market has seen a 64% drop-off in scrapping volumes this year, while the struggling bulker market has experienced a 91% increase.
Leading the rush to the breakers torch are capesize bulkers, with around 18 already sold for recycling this year. About 75% of this year’ scrap deals have involved bulkers.
With Chinese yards now offering a much lower price, distorted by the subsidy scheme, cash-strapped shipowners are increasingly choosing to forget the pressure for green recycling and opt for the higher returns of the Indian subcontinent.
As a result, the international commercial green recycling market in China has crashed. “In October last year, the difference between China and the subcontinent was nearly zero but now there is a huge gap and owners want to go to India,” said Greig Green chief executive Petter Heier.
Fresh regulation from Europe could, however, strongly influence where owners opt to bring their end-of-life vessels.
Guidelines are currently being drawn up for recycling European-flag ships and it now looks like authorities will not accept yards using the beaching method. In effect, that will rule Indian, Pakistani and Bangladeshi facilities out of the European market.
GMS’s Sharma says the European Commission (EC) and environmentalists are unfairly demonising Indian subcontinent yards, despite progress being made by many on safety and environmental standards. “They make it sound like you are committing a sin if you go to the Indian subcontinent,” he said.
Yet the EC regulation is creating confusion among owners over what the acceptable standard for ship breaking yards will be. In the background, the Hong Kong Convention for the Safe and Environmentally Sound Recycling of Ships is painstakingly working its way toward ratification, in what most governments and owners are relying on as the only hope to set a global standard.
Source: trade winds news. 6 March 2015