The
shipbreaking industry had a stormy 2015. The year started off with high volumes
wherein the first four months of 2015 saw a 10 percent increase in the number
of ships over the previous year and an increase of 88 percent in light ton
displacement (LDT) volumes. The main reason for the increased LDT volume was
Cape size bulkers being sent for recycling as a result of the poor freight
markets being experienced by the dry sector.
While
demolition market was transacting high volumes, the industry was plagued with
falling prices. This resulted in heavy losses both for cash buyers and ship
breakers. Falling prices were caused by excess steel produced by China being
dumped into global market due to low Chinese demand. The slowing Chinese
economy reduced national consumption resulting in a continued excess of Chinese
steel production.
The
rest of 2015 saw a reduction in sales volume of 33 percent based on number of
ships but, due to the higher average tonnage per vessel being recycled in 2015,
overall volumes were still higher by 18 percent. Overall, 2015 saw 40 percent
more tonnage being recycled than 2014 by light weight.
It
was a year of continuous dropping prices which continued right up to February
2016. Over a period of 13 months from January 2015, there was a drop of almost
45 percent. To make matters worse, the drop was erratic with some small rise in
April, June and September 2015.
Measures
were taken by countries in the Indian sub-continent to discourage cheap steel
imports from China. These included levying duties on imports, but it proved
futile as Chinese suppliers countered duty increases with price reductions.
Shipowners suffered lower realization too on their vessels compared to previous
forecasts based on high prices. They took some time to adjust to the new price
levels being seen in the market.
In
the past month we have seen a price increase of about 15 percent over the
previous month. Though it must be noted that there had been a 45 percent
reduction in price till February 2016 compared to January 2015 prices. Thus
current market prices are still 30 percent below January 2015 levels. In view
of the slowdown of the Chinese economy, existing surplus steel production capacities
and a global slowdown, it remains to be seen whether prices can reach what now
seems to be very high levels of $400/LDT.
The
most recent increase is due to an rise in the price of Chinese billets on the
expectation that there will be increased demand in steel consumption in China
in the second quarter of 2016 as a result of new infrastructure spending. The
increase in prices have been swift in past few weeks based on Chinese billet
prices, but whether the Indian sub-continent market would be able of accepting
the increased prices is key to ensuring stability of recent price increases
seen in the market.
Source: maritime executive. 26 April 2016
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