Pakistan Shipbreaking Industry Revives:

Construction and engineering industries of Pakistan depend on the steel re-rolling industry, which acquires its raw material from shipbreaking or imported scrap.

Under the new policy the steel production target was set at 10 million tonnes by the year 2015 and 15 million tonnes by the year 2020. The present capacity of steel production is 4 million tonnes as against demand of over 6 million tonnes per annum, showing a gap of 2.5 to 3 million tonnes, that is, being met through import. The steel production units are functioning bellow capacity because of raw material shortage and slack demand.

To expand the steel sector huge amount is needed that Pakistan cannot afford. Besides, other elements like security of investment, foreign experts and continuous availability of raw materials at reasonable prices, uninterrupted supply of electricity is also required that lacks in Pakistan.

Moreover, the steel sector is directly linked with the international market where iron and steel prices are on the rise and Pakistan has to follow the trend, as it cannot stand alone.

The steel re-rolling industry of the country is presently facing numerous problems as it is not getting raw material in sufficient quantity and utilising only 40% capacity against normal use of 80 to 90%. Moreover, due to slowdown in the construction activities, sale of steel products has decreased. For instance the production capacity of the re-rolling mills in Karachi was 5,000 tonnes per day, but the demand was only 2,000 tonnes per day.

Due to the shortage of raw material and other problems the prices of steel bars in the domestic market had at a time reached Rs 87,000 per tonne, which are now available at Rs 55,000 per tonne. The price was the lowest at Rs 40,000 per tonne last year when the scrap ships prices were at $250 per tonne to $280 per tonne in the international market.

The scenario of the steel sector in Pakistan indicates that this industry has a bright growth potential. The per capita consumption of steel in Pakistan is only 38 kilogrammes (kgs) as against global average of 175kg. If very modest increase in per capita steel consumption took place and reached 80kg in the next 10 years, the steel demand would be 16 million tonnes per annum for a population of about 200 million by the year 2020.

However, a 26.9% negative growth rate was recorded during July-March 2009-10 in steel products. Among the major factors behind this was the financial crunch in Pakistan Steel Mills (PSM).

World over the unprecedented economic slowdown started in 2008. It caused crash of steel products market in terms of both price and quantity wise and the production of steel industry had suffered very badly during 2008-09, which continued during 2009-10.

Pakistan is an importer of basic raw materials of steel and due to the above situation PSM has suffered huge losses of Rs 26.5 billion in 2008-09, even it has not been able to import basic raw materials, iron ores and coal, as per its requirement. During July 2009 to February 2010, capacity utilisation was at 43% only.

Future plan:

The domestic consumption of steel products is around 5.6 metric tonnes per year. Expansion in the production capacity of Pakistan Steel to three metric tonnes per year or above was planned. The plan would be implemented in 2 phases and completed in the next 3 to 5 years.

Pakistan Steel has also started an indigenisation programme to replace costly imported iron ore by locally available material and it is expected that 250,000 metric tonnes local iron ore will be arranged for PSM this year, which will be enhanced to 500,000 metric tonnes within the next 3 years.

Shipbreaking industry:

The shipbreaking industry played an important role in developing steel industry in Pakistan. This industry started in 1970 and reached to its peak in 1980s.

The shipbreaking industry is an indispensable part of the economy for developing countries since it requires a small amount of investment and being mainly dependent on manual labour and is a good source of employment for the locals. From the point of ship owners, it provides a cash flow for the renewal of fleet, by disposing irreparable ships.

Shipbreaking is perhaps as old as the shipping industry itself. It is the process of dismantling of an obsolete ship’s structure for scrapping. The scrapped metals, steel or iron, are used by the respective re-rolling industries as raw material whose products are used by the construction and engineering industry in Pakistan.

A ship’s life lasts for an average of 25 to 30 years after that it is supposed not safe to sail. About 95% of these ships are dismantled to recover steel. Scrapping a ship can make the owner an earning of about $1.9 million. However, the ships built before the 80’s have tonnes of extremely toxic substances, hazardous to human and environmental health.

Conducted at a pier, dry dock or dismantling ship includes a wide range of activities, from removing all gear and equipment to cutting down and recycling the ship infrastructure. The activity is a challenging job due to complexity of the ships and the environmental, safety and health issues involved.

In the early days wooden ships condemned were often burned or even carefully ‘lost’ in some convenient spot. Today the shipbreaking industry is run on scientific lines, and nothing is wasted. Sooner or later, every ship that sails into the sea is going to make its last voyage and the odds are that final journey will last at one of the shipbreaking yard on the coast of India, Pakistan or Bangladesh. The term ‘shipbreaking’ is slowly being replaced by ‘ship-recycling’.

In the 1970’s shipbreaking was done in the docks of Europe. It was supposed a highly mechanised industrial operation. But as European countries became more environmentally conscious they started taking health and safety measures, which escalated costs of scrapping. Therefore, about 90% of the shipbreaking industry moved to Asian countries, like India, Bangladesh, China, Pakistan and Turkey, as these countries were less environmentally and health conscious. Every year about 600 to 700 ships die and are brought to the beaches of Asia for scrapping.

From early 1980s to maximise profits ship owners sent their vessels to the scrap yards of India, China, Pakistan, Bangladesh, the Philippines and Vietnam where wages, health and safety standards were minimal and workers were ready to accept minimum wages. It was estimated that over 100,000 workers were employed at shipbreaking yards worldwide. Of them about 45,000 ocean going ships in the world about 700 (1.55%) are taken out of service every year. At the end of their sailing life, ships are sold so that the valuable steel, about 95%, of ships mass can be reused.

United States:

In the United States, in 1950, there were over 2,000 surplus federal ships, tied together in slack water clusters around the nation. Over the years they were re-deployed, converted to commercial use, scrapped, or sunk offshore. The number has decreased to 200 ships still mostly WW-II era cargo ships, cruisers, destroyers and even aircraft carriers.

In the 1970s, the shipbreaking focus shifted from the traditional ship dismantling countries of the USA, the UK, Spain, Belgium, Germany, Italy and the Netherlands to low wage Asian countries, forcing the western world to limit their dismantling activities to small ships and obsolete marine vessels.

The USA has become the world’s leading ‘green’ recycler of marine ships and six ship dismantling yards. They are all bound by the strictest environmental controls.

China:

In China ships are broken in docks with cranes and machinery. But the working conditions are almost the same in shipbreaking yards as all over Asia, such as, insufficient protection.

In 2000, in an inspection of 4 Chinese shipbreaking yards it was found that

• workers were insufficiently protected against toxic and hazardous materials. Toxic waste was burnt in open fires.
• Asbestos was removed without proper protection for workers.
• Asbestos was sold for reuse to industries producing heating systems.
• Yards were heavily polluted by oil, heavy metals and other toxic substances.
• Pollution had spread outside the yards as well.

Turkey:

One of the major shipbreaking sites is in Aliaga, around 50 kilometres north of Izmir Turkey, where 2.8% in number and 1.1% in tonnage of the world’s global fleet was scrapped per year, 1994-2002. The recycled steel from the Aliaga shipbreaking yards is an important component of the steel supply in Turkey, but only recently have the yards begun to care for environmental issues and occupational health.

Up to 100 ships are scrapped every year in Turkey, which has so far failed to implement its ban on imports of hazardous waste. While with the 1995 Regulation to Control Hazardous Wastes, Turkey banned the import of hazardous waste. Although Turkey is an Organisation for Economic Cooperation and Development country, the environmental and working conditions are very similar to the shipbreaking countries in Asia.

Shipbreaking in Aliaga began in mid 70’s and officially in 1984 when the import of ship-for-scrap was allowed according to liberalisation measures of that time.

India:

In India most of the ships are beached at Alang, in Gujarat, on the west coast of India. In 1983 the first ship was scraped and later this beach became the world’s leading shipbreaking yard.

Shipbreaking industry revives - II

At the end of their average 28-year life span, ocean going ships are scrapped, primarily for their recyclable steel content. There are roughly 45,000 ocean going ships in the world including container ships, general cargo ships and cruise liners. Each year about 700 ships are taken out of service and scrapped to retrieve their steel content.

Pakistan:

Situated about 50 kilometres (kms) northwest of Karachi in Lasbela, Balochistan, Gadani was known for its shipbreaking industry all over the world since 1970s. In the 1980s, it ranked as the 2^nd largest shipbreaking yard, after Taiwan, in the world. It was used to break 100 to 150 ships per annum and providing jobs to about 30,000 people. In later years, its activities shrunk to one fifth of the scrap it used to produce two decades ago, because of levying a tax in 1990s.

In the beginning there were very few shipbreaking plots but the number has increased to 127 and another 5 plots are being developed.

Hundreds of steel re-rolling mills in Pakistan depend on the shipbreaking industry for the supply of ship plates. However, the bigger units have an alternative to use iron billet of the Pakistan Steel that are comparatively more expensive.

The majority of ships scrapped on Pakistani beaches are oil tankers. Pakistani shipbreakers have specialised in large tonnage vessels. In 1999 the country was the 3^rd largest shipbreaking nation. In 2001 some very large crude oil tankers have sailed to the scrapping beaches of Pakistan.

In Pakistan, about 35 years ago, shipbreaking was done manually, starting from cutting to moving ship plates up for loading on trucks. For moving down heavy equipments from a ship with an average height of 60 feet to fix a trolley wire ropes were used. On an average it used to take 3 years for dismantling one ship but now with modern equipments like cranes, cutters, lifters etc, one ship is dismantled within 2 to 3 months.

Pakistan shipbreaking industry is likely to face a tough time in the future because average prices of ships are increasing in the international markets, besides expected imposition of value-added tax (VAT) may have bad effects on the industry. The prices of old vessel have gone up from $220 to $230 in 2008 to $420 to $430 per tonne in 2010.

However, the activities at Gadani are flourishing since October 2008 and during the 2008-09, 86 ships were dismantled. The number rose to 107 in 2009-10 having 852,022 LDT. The shipbreakers are looking forward at better days ahead.

China’s ever growing demand for scrap ships to meet steel appetite also pushed up junk ship prices to record highs of beyond $400 per light displacement tonnage (LDT), up 80% over the past few months, which is making purchasing of ships tough for India and Pakistan. Most tankers are going to China and Bangladesh, and the prices are ruling at $420-430 per tonne. At the current market rate ship demolition in India is financially not viable, says Indian Ship Owners’ Association president.

Therefore, shipbreakers thought twice before placing orders for a scrap ship because of high prices and VAT imposition. Prices of ships are not likely to decrease in near future as buying orders from India and Bangladesh are pouring in increasing prices of ships in the international markets.

Shipbreakers said the industry is paying a tax of Rs 16 billion per annum as compared to Rs 4 billion before levying the special tax. In spite of collecting huge amount of taxes there is lack of basic facilities like roads, electricity, drinking water or even providing first aid or medical help to the workers of this industry.

In the 1970s about 150 ships entered Gaddani for scraping imported by more than 100 companies operating in the country. The period of 1969-83 is known as the golden era of shipbreaking in Pakistan. It was estimated that during these years, this industry was contributing about Rs 5.3 billion to the national exchequer as taxes. Around Rs 1,000 million have been generated from customs duty and income tax through the import of abandoned ships. At that time Gadani Town Committee was earning over Rs 30 million per annum through octroi duty alone making it Pakistan’s richest local body in terms of population revenue ratio.

The industry was thrown into hot waters and about to collapse in the 1990s due to a political family in power having a steel unit. The then government suddenly imposed duty on the industry that gave an opportunity to India and Bangladesh to fill the vacuum. About 80% ships were being dismantled in the two countries.

Today both countries are prospering and China has also become an important contributor to the shipbreaking industry. In India, the annual shipbreaking reached above 3 million tonnes followed by Bangladesh with 1.5 million tonnes.

Shipbreaking boom has once again returned in Pakistan because of the liberalisation of policy and removal of customs duty and sales tax that helped to revive this industry, after a gap of two decades.

There is no customs duty, which was generally ranged between one to 25% and sales tax at 16%, the national exchequer has collected Rs 129.055 million only on 70 ships. This collection was on account of one percent income tax and withholding tax, at import stage.

However, there is nominal customs duty, sales tax and federal excise duty on those items, which are not part of the vessel but are loaded as leftovers.

The previous situation led to an increase in the smuggling of scrap from Iran and Afghanistan to Pakistan. Now with the revival of shipbreaking industry smuggling will be reduced at least 50%. It is estimated that the ships being scraped at Gadani would produce 500,000 tonnes raw material for the steel industry in the country.

The international financial crisis has affected the ship building industry on one hand, but boosted the shipbreaking industry on the other. With shipping companies breaking ships to cash in chips and scrap steel substitution taking effect, shipbreaking industry may grow rapidly in the near future.

Pakistani shipbreakers demanded that the steel industry should be exempted from electric and gas load shedding that would help strengthening steel industry of the country.

However, beaches where shipbreaking happens in Asia, are now graveyards of machinery parts, oil rags and leaking barrels, air poisoned by open fires, land and surrounding water contaminated by asbestos, heavy metals, dioxins and other persistent organic pollutants but it is a big source of employment and provides raw material to the steel industry.

Source: The Daily Times.

Shipbreaking industry revives. By Ismat Sabir. 29 September 2010

http://www.dailytimes.com.pk/default.asp?page=2010%5C09%5C29%5Cstory_29-9-2010_pg5_12

Shipbreaking industry revives – II. Sunday, 10 October 2010    

http://www.dailytimes.com.pk/default.asp?page=2010%5C10%5C10%5Cstory_10-10-2010_pg5_14