Cash buyer GMS reports an eerie calm has descended across tense global economies including the needy ship recycling sector
Global economic tensions have reached an unnerving point of stillness, according to GMS, a leading buyer in the cash shipping industry. This quiet comes in the wake of months of mounting uncertainty, which has especially impacted the ship recycling sector. Over the past decade, the industry has been in a steady state of fluctuation, but 2024 may mark one of its worst years yet. Ship recycling, a sector that relies on a consistent supply of decommissioned vessels, is now facing one of its most profound supply shortages in recent memory.
A Supply Crisis Like No Other
It’s been a long time since ship recyclers have had access to a healthy and steady supply of vessels. According to GMS, this situation is likely the worst the industry has faced in the last ten years. The usual inflow of ships—ranging from container ships to oil tankers—has ground to a near halt, leaving ship recyclers with few options for new stock. The lack of a regular and varied supply of vessels is disrupting the industry’s ability to maintain steady operations.
Compounding the issue is the steady decline in prices. In early 2024, the market peaked with scrap ship prices reaching competitive levels, but since then, prices have tumbled dramatically. Prices have dropped by over USD 100 per long ton of displacement (LDT), the standard unit of measurement in ship recycling, leaving many shipowners reluctant to send their vessels to scrapyards. GMS reports that the average price for scrap ships has now fallen well below the USD 500 per LDT mark—a dramatic decline that has left many in the industry reeling.
Geopolitical Instability Compounds the Problem
The ship recycling market’s woes cannot be viewed in isolation. Much of the volatility can be traced to geopolitical events that have shaped economic conditions around the world in 2024. GMS highlights the unpredictable nature of global instability, with sentiments in the industry shifting drastically from one week to the next. Factors such as war, sanctions, and shifting trade alliances have all played a role in disrupting the regular flow of decommissioned vessels to recycling yards.
A key example is Bangladesh, once a crucial hub in the ship recycling industry, which has been largely absent from the market for the past several weeks. The country’s political landscape is in flux, with an interim government in place, leading to most infrastructure projects being paused. This has removed a significant source of demand for scrap metal, as construction halts have dampened the need for steel, further destabilizing the ship recycling industry.
Meanwhile, India, another significant player in the industry, has managed to secure a substantial influx of vessels. However, the outlook across neighboring Pakistan and Bangladesh is bleak, with ship recycling yards lying empty. The reason for this lies not only in political uncertainty but also in weak market sentiments that have stifled demand. Without a regular stream of ships arriving for dismantling, many yards in these countries have ground to a halt, adding to the sector’s woes.
The Impact of Cheaper Chinese Steel
Adding further complications to the ship recycling industry’s struggles is the flood of cheap Chinese steel entering the global market. For years, Chinese steel has been a point of frustration for recyclers in countries like India and Pakistan. Despite efforts to impose tariffs on this low-cost steel, the local markets have not stabilized. Steel plate prices in these regions continue to either fall or remain stagnant, with little sign of improvement on the horizon.
As ship recycling yards rely heavily on selling the steel extracted from scrapped ships, the low price of steel has severely impacted their profit margins. The influx of Chinese steel has depressed prices across the region, making it difficult for local recyclers to compete. With little incentive to recycle ships for lower-than-expected returns, many yards are opting to remain idle until market conditions improve.
Currency Depreciations and Economic Pressures
In addition to low steel prices, another key factor contributing to the industry’s downturn is the ongoing rise of the U.S. Dollar against the currencies of major ship recycling nations. GMS notes that this week, all key ship recycling destinations—India, Pakistan, and Bangladesh—reported varying degrees of currency depreciation. A stronger dollar means that the cost of importing ships for recycling becomes more expensive, further squeezing the already tight margins faced by recyclers.
These economic pressures are not limited to the ship recycling sector. They are part of a broader pattern of financial instability that is being felt around the world. As economies grapple with inflation, supply chain disruptions, and geopolitical tensions, the ship recycling industry is bracing itself for a challenging fourth quarter. GMS forecasts that these pressures are unlikely to abate anytime soon, with the potential for continued economic strain extending into the first quarter of 2025.
A Worrisome Economic Cycle
There is a growing concern within the ship recycling industry that the current economic downturn is part of a recurring cycle of financial turmoil. GMS points out that over the past two decades, the global economy has experienced major recessions on an eight-year cycle. The financial crisis of 2007-2008, the downturn of 2015-2016, and the current struggles of 2023-2024 all fit into this pattern.
This cyclical nature of economic instability has left many in the industry fearing that the worst is yet to come. As GMS notes, the ship recycling market, already fragile, could see even greater challenges ahead if broader economic conditions continue to deteriorate. The looming threat of another global recession, combined with the ongoing supply shortages and price declines, paints a grim picture for the months to come.
The Dry Bulk Sector Remains Firm—for Now
Amidst all the challenges facing the ship recycling industry, there has been one notable exception: the dry bulk sector. Freight rates across the sector have remained firm, and as a result, there has been a noticeable cooling in the number of dry bulk ships being sent for recycling. This is a rare bright spot in an otherwise bleak landscape, as strong demand for dry bulk shipping has kept many vessels in active service.
However, GMS cautions that this situation may not last forever. While there are few candidates expected to head for recycling through the remainder of the year, any significant downturn in global trade could quickly change that. For now, though, the dry bulk sector remains one of the few areas of relative stability in an otherwise turbulent market.
In conclusion, as 2024 progresses, the ship recycling industry faces a host of interconnected challenges: dwindling supply, declining prices, geopolitical instability, currency depreciation, and global economic uncertainty. GMS reports that the eerie calm that has settled over the industry may only be the precursor to more difficult times ahead.
