Deep Dive into the Stifling Ship Recycling Market
Global Market in Chokehold:
The latest report from GMS paints a grim picture of the global ship recycling market, describing it as “suffocating” due to a severe shortage of available ships. This lack of tonnage is squeezing ship recyclers worldwide, impacting their ability to operate effectively.
The Case of Bangladesh & Pakistan:
These South Asian nations heavily rely on imported ship steel for various reasons. Firstly, it is crucial for their large-scale infrastructure projects. Secondly, compared to other forms of imported scrap metal like HMS 1 & 2 or shredded steel, ship steel is considered “healthier” and “rust-free,” making it a preferred choice. This difference in quality justifies a higher price per ton paid for ship steel. Additionally, the easy availability of ship steel compared to local mining, logistics, or even other imports makes it a cost-effective solution for these developing nations.
On the supply side, the dry bulk and container sectors continue to witness surging rates, enabling owners of even 25-30-year-old vessels to find lucrative opportunities for their units. The unexpected surge in freight rates has not only attracted the tanker sectors but also diverted attention away from specialist units that were previously contributing to the revitalization of recycling hubs like Alang. This diversion has resulted in a significant shortage of tonnage across major recycling waterfronts.
Supply Side Squeeze:
The thriving dry bulk and container sectors are causing significant challenges on the supply side. Strong freight rates since the beginning of 2024 are motivating ship owners, even those with vessels 25-30 years old, to keep their ships operational instead of sending them for recycling. This trend extends to the tanker sector, which is currently experiencing historically high freight rates. Moreover, the recent surge in freight rates has also diverted specialized units that were previously contributing to the limited supply of recyclable ships. This has left major recycling centers, like Alang in India, facing a “famished” state due to the lack of available ships.
Turkey Feels the Pinch:
The global shortage of tonnage hasn’t spared the Turkish market either. The Turkish Lira’s depreciation, coupled with internal economic factors, has finally broken the momentum that kept vessel prices high. As a result, Turkish buyers have been forced to reduce their bids by USD 10/MT, marking a significant shift from the previous trend.
Geopolitical Turmoil and Uncertainty:
The ongoing geopolitical tensions are playing a key role in the current surge in charter rates. These disruptions in global trade have created uncharted territory, impacting the entire shipping industry. Adding to the uncertainty, questions remain regarding a potential economic downturn in China, a major player in the global trade landscape.
Recovery on the Horizon?
Despite the current challenges, there are signs of recovery in some regions. Both Pakistan and Bangladesh are witnessing a rebound in their recycling activities after overcoming limitations related to financing and letter of credit restrictions in 2023. Additionally, with political uncertainties seemingly resolving in several key ship-recycling markets across the subcontinent, there’s cautious optimism for the future. However, the Indian market remains hesitant, with Alang recyclers holding off on firm offers until the outcome of the upcoming elections is confirmed.
Questions arise regarding China’s economic status, given the bullish trading markets, which contrasts with concerns about potential downturns. Despite setbacks such as the loss of value experienced in 2023 due to financing restrictions in Pakistan and Bangladesh, recycling locations are gradually recovering. With political disruptions settling across sub-continent ship recycling markets and India’s elections reportedly rescheduled, uncertainties persist, particularly among Alang recyclers awaiting the outcome of elections before firm commitments are made.
In Conclusion:
The global ship recycling market is currently experiencing a period of significant strain due to a lack of available ships. This shortage is impacting major players worldwide, including Bangladesh, Pakistan, and Turkey. While there are signs of gradual recovery in some regions, ongoing geopolitical issues and upcoming political events continue to introduce uncertainty into the market outlook.
