Ship Recycling Industry Faces Challenges Amidst Global Economic Uncertainty
The ship recycling industry is currently experiencing a rough patch, with several factors contributing to a slowdown in activity. Here’s a breakdown of the key points:
“in India, the market is facing a persistent decline with little to no demand, and there is a notable shortage of available vessels; consequently, no new vessel deals have been concluded due to the current market situation. Indian buyers are struggling to compete internationally, as the ongoing downward trend has significantly impacted their competitiveness against global counterparts. Market typically experiences lower demand during the monsoon season, following historical trends. However, the current market is highly unpredictable, making it difficult to rely on past patterns for forecasting demand. Indian steel exports are facing challenges due to China’s overcapacity and weak domestic demand, leading to a global market flooded with cheap steel. In May 2024, India’s steel exports dropped nearly 25% month-on-month”.
Market Downturn in India and Bangladesh:
- India, a major player in ship recycling, is facing a significant downturn. There’s minimal demand for recycled ships, coupled with a shortage of vessels available for dismantling. This has led to a halt in new deals and weakened India’s competitiveness in the global market.
- Bangladesh, another significant player, is experiencing similar issues. Prices for recycled materials have dropped by 500 to 1,000 Taka ($5.85 to $11.70 USD), with the potential for further decline. This creates uncertainty about the future trends in the Bangladeshi market.
Reasons for the Downturn in India and Bangladesh:
- Monsoon Season: Historically, demand for ship recycling dips during the monsoon season in these regions. However, the current situation seems more severe, making it difficult to predict future trends based on past patterns.
- Global Steel Market: India’s steel exports, a key product of ship recycling, are facing challenges due to China’s overcapacity and weak global demand. This has led to a flooded market with cheap steel, making it difficult for Indian recyclers to compete profitably.
- Currency Fluctuations: The weakening of the Bangladeshi Taka against the US Dollar further complicates the situation in Bangladesh.
Mixed Signals from Other Markets:
- Pakistan’s market has partially reopened with initial signs of rising demand and stable steel prices. Further improvement is expected as the market adjusts to its recently implemented budget.
- Türkiye’s market remains stable but lacks momentum. The industry anticipates an increase in ship tonnage coming for recycling, which could drive future growth.
Global Economic Concerns:
- The International Monetary Fund (IMF) has warned about the risks posed by the U.S. government’s high budget deficits and rising debt. This could have a negative impact on the global economy, even if other economic indicators appear strong.
Steel Industry Update:
- Global steel production witnessed a 5.7% increase from April to May 2024, reaching 165.1 million metric tons. This represents a 1.5% growth compared to the same period last year.
Additional Observations:
- Shipbroker Banchero Costa noted a shift in sentiment across the Indian Subcontinent markets compared to earlier this year. Prices have dropped by $20-30 per Light Displacement Ton (LDT) across the three major markets (India, Bangladesh, and Pakistan).
- This weaker sentiment could be partly due to the monsoon season and partly due to a decline in local steel plate prices.
In Conclusion:
The ship recycling industry is currently facing a challenging period, particularly in India and Bangladesh. The global economic situation and the flooded steel market are adding to the difficulties. While there are some positive signs in Pakistan and a potential future increase in activity in Türkiye, the near future seems uncertain for the industry as a whole.
