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
