Global Ship Recycling Markets Face Uncertain Future Amid Price Drops and Geopolitical Instability
As the global ship recycling industry approaches the end of 2024, market conditions remain turbulent. A year marked by limited sales activity is wrapping up on a shaky footing, with significant price drops casting a shadow over the sector. According to GMS, a leading cash buyer of ships for recycling, prices in the subcontinent have plummeted by nearly $150 per Light Displacement Ton (LDT) compared to previous highs, raising concerns about the industry’s future as it heads into 2025.
Declining Prices, Weak Start to 2025
Traditionally, the ship recycling industry experiences a surge of activity in the first quarter of the year, driven by higher prices and increased availability of vessels. However, GMS warns that this customary January vigor may not materialize in 2025. The firm points to ongoing market instability and geopolitical tensions, including escalating nuclear threats, as factors that could stifle recovery in the new year.
“Q1 2025 doesn’t seem as though it is ready to greet the ship recycling industry with its customary January/Q1 vigor,” GMS stated in its latest market update. “In fact, if things continue the way they are, with the Nuclear Clock ticking ever closer to midnight, 2025 may be another difficult year for the shipping and ship recycling markets overall.”
Despite these concerns, there has been a recent uptick in the inflow of older vessels, particularly those previously owned by Chinese shipping companies. GMS notes that these “Far Eastern Rusty Rhondas” have been making their way into the recycling markets in India and Bangladesh, where they are being processed in healthy volumes. This trend offers a glimmer of hope for the industry, but it may not be enough to offset broader market challenges.
Competitive Pressures in the Subcontinent
The ship recycling markets of India, Pakistan, and Bangladesh—the main hubs of global shipbreaking—are facing stiff competition from cheaper Chinese steel. This competition has put significant pressure on local recycling yards, which rely on the sale of recycled steel to remain profitable.
India, the largest player in the region, has seen its yards struggle to maintain competitiveness. Despite a slight rebound in recent weeks, Indian recyclers are still grappling with reduced profit margins due to the influx of inexpensive Chinese steel. Meanwhile, Pakistan’s recycling industry in Gadani remains largely dormant, with local buyers hesitant to commit to large purchases amid ongoing economic uncertainty.
“Gadani buyers remain quiet, unlikely to engage in any serious business in the face of a stronger India,” GMS reported. Pakistan’s negotiations with the International Monetary Fund (IMF) over its beleaguered financial situation have further compounded the issue, as allegations of misappropriated funds have stalled progress.
Bangladesh, historically a strong player in the recycling market, is facing its own set of challenges. Political instability, exacerbated by the recent departure of former Prime Minister Sheikh Hasina, has disrupted economic activity. The country’s ship recycling sector, which relies heavily on steady government support and favourable policy conditions, has been hit hard by the ensuing uncertainty.
Impact of Geopolitical Instability
The broader geopolitical landscape also looms large over the industry. Rising tensions between major global powers and regional instability have created a volatile environment for ship recyclers. The threat of conflict, particularly in the Middle East and South Asia, could disrupt shipping routes and impact the supply of end-of-life vessels to recycling yards.
The “Nuclear Clock” referenced by GMS underscores these concerns, as fears of global conflict remain high. Any escalation could have a ripple effect on international trade and, by extension, the ship recycling market.
A Glimmer of Hope: Increased Vessel Supply
Despite the challenging environment, one positive development has been the increased availability of older vessels for recycling. Over the past few quarters, Chinese shipowners have offloaded a significant number of overaged units, many of which are now finding their way to South Asian recycling yards.
GMS highlighted the steady flow of these vessels into India and Bangladesh, noting that “healthy port positions” in both countries indicate a robust pipeline of incoming ships. This trend is expected to continue into early 2025, providing some much-needed volume for recyclers.
However, questions remain about whether this influx will be enough to stabilize the market. With prices still depressed and geopolitical risks on the rise, recyclers may struggle to turn a profit despite the increased supply.
Outlook for 2025
As the year draws to a close, the outlook for 2025 remains highly uncertain. While the recent uptick in vessel supply offers a silver lining, the broader market conditions suggest that the road ahead will be fraught with challenges.
“2025 may be another difficult year for the shipping and ship recycling markets overall,” GMS cautioned, emphasizing the need for cautious optimism in the face of ongoing market volatility.
For now, the industry will be watching closely as the first quarter of 2025 approaches, hoping for signs of recovery but bracing for another year of uncertainty. Whether the market can rebound will depend on a range of factors, from global steel prices to geopolitical developments and the pace of economic recovery in key regions.
In the meantime, ship recyclers across the subcontinent are gearing up for what promises to be a turbulent start to the new year.
