Business Line reported that the shipbreaking
industry is facing pressure from currency fluctuations, slowdown in the steel
sector and regulatory risks. This, despite a buoyant outlook on vessel
availability.
The global shipping downturn and weak
macroeconomic headwinds since 2009 have facilitated the growth of the ship
breaking industry with an increase in the supply of ships to be scrapped.
According to the Gujarat Maritime
Board, the Alang shipbreaking yard, India’s biggest yard, dismantled 415 ships
during 2011-12. Ever since its inception in 1982, Alang has emerged as the
choicest ship-scrapping destinations for ship owners around the world. There
are 173 plots to carry out ship-recycling activities. This is an industry by
itself, as it provides around 30,000 jobs in Alang and generates steel totaling
millions of tonnes every year.
India, with its favorable weather
conditions and low manpower costs, has emerged as a leader in terms of both
volume and number of ships broken. Further, the relatively less stringent
regulations related to environment and human health hazards have also aided the
growth of the ship breaking business in India.
Steady supply
ICRA in a report said that with the
outlook on international shipping freight rates being subdued over the near to
medium term and large tonnage expected to come on stream post 2012, the shipbreaking
industry is expected to continue witnessing a steady supply of vessels for
demolition over the medium term.
Shipbreakers have witnessed healthy
growth in operating income in recent years due to increased availability of
ships for dismantling. But profit margins are inherently thin due to low value
addition and the highly competitive nature of the business. Additionally,
margins have come under pressure in the recent past due to steep rupee
depreciation, which has increased the cost of purchase of ships, coupled with a
decline in realisations of the end product (steel melting scrap) due to
slowdown in the steel-consuming sectors.
Mr K Ravichandran senior
vice-president and co head, corporate ratings of ICRA said that regulatory risk
remains high for the shipbreaking business. He said that the Supreme Court
recently passed an order requiring stricter implementation of ship breaking
norms in view of the environmental and health hazards. This, as well as any
other proposed regulation could entail event-based risks for Indian shipbreaking
operators and may affect their competitiveness against players in other
countries.
Source: steelguru.
30 September 2012
http://www.steelguru.com/indian_news/Ship_breaking_sector_buffeted_by_currency_and_regulatory_headwinds/285639.html
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