As summer and the monsoon season approaches, the ship recycling markets in Turkey and the Indian subcontinent have been experiencing a firming trend. Pakistan, although still relatively stable, has shown signs of saturation after a period of substantial intake of vessels. Despite surpassing last year’s recycling volumes with three new arrivals this week, the outlook in Pakistan remains somewhat bleak due to various challenges. These include a persistent shortage of workable tonnage, stronger demand from neighbouring countries leading to increased competition for available units, and recurring problems associated with a lack of U.S. Dollar reserves, which have reemerged as a significant issue.
The shortage of U.S. Dollar reserves has been particularly severe in Bangladesh over the past year. Recent economic changes have indicated that this problem may resurface, as evidenced by the significant devaluation of the Bangladeshi Taka. This has caused concern among Gadani Choppers, who have been hesitant to make offers on available units due to fears of further price declines and potential issues with incoming L/C restrictions. As a result, newly concluded deals are at risk of becoming subject to renegotiation almost immediately upon arrival. Additionally, with the announcement of Bangladesh’s Budget for the fiscal year 2024-2025 expected in early June, the market is bracing for another predicted downturn through June and early July.
In contrast, the market in India has been on an upward trajectory in recent weeks. Alang Recyclers have been actively acquiring ships, benefiting from the rising steel prices that have been firming since the start of the country’s General Elections. This upward trend has been further bolstered by their significant purchases of specialist vessels and even the occasional HKC-compliant recycling sale unit. The Indian market’s aggressive stance on acquiring ships indicates a strong position in the current market landscape.
The ship recycling industry in Turkey and the Indian subcontinent is showing signs of recovery as the summer monsoon approaches. This is in contrast to Pakistan, which despite exceeding last year’s volumes, faces a less optimistic outlook.
Pakistan’s Struggles:
- Limited Supply: Pakistan lacks a sufficient number of “workable” ships available for scrapping. These are vessels that are commercially viable for recycling facilities.
- Competition: Increased demand from neighboring countries like India and Bangladesh puts pressure on Pakistan’s ability to secure these desirable ships.
- Dollar Shortage: A growing lack of US dollar reserves in Pakistan creates financial hurdles. Recyclers are hesitant to commit to purchases with concerns about potential currency fluctuations.
Bangladesh’s Uncertainties:
Bangladesh, which has historically faced difficulties with dollar reserves, seems to be heading back towards that challenge. A recent devaluation of their currency, the Taka, has made recyclers cautious. They worry about potential restrictions on issuing Letters of Credit (L/Cs) which could further impact prices. Additionally, the upcoming announcement of the Bangladesh budget in early June adds another layer of uncertainty to the market, with predictions of a decline in activity through June and early July.
India’s Rise:
India, on the other hand, is experiencing a positive trend. Recyclers in Alang are actively acquiring ships, taking over the lead from their counterparts in Chattogram, Bangladesh. This is fueled by:
- Strong Steel Prices: Steel prices have been firming since the start of India’s General Elections, making ship recycling more profitable.
- Acquiring Diverse Ships: Indian recyclers are not only buying specialist ships but also taking advantage of rare opportunities for vessels approved for environmentally friendly “Hong Kong Convention (HKC)” recycling.
Overall Outlook:
While Turkey and India are showing signs of growth, Pakistan faces limitations due to a lack of available ships, competition, and financial constraints. Bangladesh experiences similar challenges with currency fluctuations and upcoming economic uncertainties. India’s rise in activity may be temporary, depending on how steel prices and the election results play out.
