Green Recycling and Regulatory Fog: Charting the Course for Ship Recycling’s Future
The ship recycling industry is facing unprecedented challenges, creating an uncertain landscape for the market, according to Sanjiv Agarwal, the director of a prominent ship recycling facility in Alang, India. He notes a significant decline in demand and supply, leading to a drop in prices. Earlier this year, prices were above US$600 per Light Displacement Tonne (LDT), but recent sales have seen rates below US$500/LDT, causing concerns in the industry. Agarwal emphasizes the importance of maintaining a price floor to sustain the industry, with steel melting scrap ideally not falling below US$325-330 per tonne and containers not dropping below US$400/LDT.
Two primary issues underpin these challenges: a severe shortage of vessels available for demolition and a lack of financing for key demolition centers. Countries like Bangladesh and Pakistan are struggling due to tight import financing and letter of credit restrictions imposed by central banks, reducing yard throughput to a mere fraction of their total capacity. In Turkey, depreciation of the Lira has forced yards to halt operations, leading some to shut down entirely.
Despite these challenges, India remains a growth market, although the available tonnage falls short of meeting the demand. Agarwal predicts a future surge in ship demolitions due to the increasing age of the container fleet, with a significant number of ships more than 20 years old requiring recycling. This imminent wave of demolitions is expected to reshape the industry dynamics significantly.
Amidst these challenges, digitalization is slowly making its way into the ship recycling value chain. Some cash buyers and yards have introduced online platforms to streamline scrap transactions, although major changes in traditional cash buyers’ operations are not anticipated at the moment. Additionally, regulatory uncertainty is casting a shadow over the industry. With regulations like the European Union Ship Recycling Regulations, the ratified Hong Kong Convention, and looming Basel Convention Ban amendments, shipowners are hesitant to plan demolition sales until there is clarity on how these regulations intersect.
Looking forward, Agarwal stresses the need to integrate sustainability principles into shipbreaking. Prioritizing the reuse of steel, aluminum, equipment, and other recoverable materials aligns with the circular economy philosophy. Agarwal and other cash buyers are exploring models that offer integrated recycling services to shipowners, potentially involving repatriating hazardous waste back to the vessel owner’s home jurisdiction after green recycling. This approach can ease regulatory burdens and, given time and openness to new techniques, even yards in countries like Pakistan and Bangladesh can attain EU compliance levels.
In conclusion, the ship recycling industry faces a complex and challenging future marked by fluctuating demand and supply, financial constraints, digitalization, and regulatory uncertainties. Adapting to these changes and embracing sustainable practices will be crucial for the industry’s survival and growth in the years to come.
This assessment chimes with a newly released report from industry association BIMCO which states the current trickle of container ships being sent for recycling is expected to change as the average age of the container fleet reaches its highest-ever recorded level of 14.2 years. With 21% of ships now more than 20 years old, there is a growing need for recycling. The orderbook is mainly focused on larger ships, leaving many smaller and older units without new buyers. In the sub-3,000-TEU segment, there are currently 994 ships more than 20 years old but only 317 on order: an imbalance which imputes a wave of container ship demolitions is on the horizon.
While the overall demolition market struggles for balance, wider industry forces continue reshaping recycling dynamics. Digitalisation is slowly permeating the traditionally offline ship recycling value chain. A few cash buyers and even yards have launched online platforms aiming to streamline scrap transactions, however Mr Agarwal is not anticipating major changes in the way traditional cash buyers operate. “I’m maintaining a watching brief on developments for now.”