Ship recycling market sluggish

There is some speculation that Pakistan might soon return to the ship recycling market, following the strengthening of the Pakistani rupee against the U.S. Dollar due to a funding agreement from the International Monetary Fund (IMF). If this happens, it could create competition for Bangladesh and India, particularly for ‘non-green’ units. The shipbroker Clarkson Platou Hellas believes that there would be significant demand from recyclers to procure tonnage, especially considering the potential rebuilding programs following major internal disasters that may occur with the financial assistance received.

Overall, the ship recycling market is facing a challenging period, with various factors contributing to its lethargic state. However, there are glimpses of stabilization, and potential developments such as Pakistan’s rumored return could add momentum to the industry in the future.

GMS, the world’s leading cash buyer of ships, reported that the ship recycling market has been sluggish and inactive recently. This has been exacerbated by several factors, including sub-continent yards remaining closed post Eid holidays, the ongoing monsoon season, and a shortage of available tonnage. As we enter the third quarter of 2023, current prices quoted for ship recycling are significantly below market expectations, making a bounce back unlikely in the near term. Due to this unfavorable market situation, most Cash Buyers and Ship Owners have chosen to adopt a cautious approach, waiting for greater stability and better pricing before proposing further transactions.

However, there have been some positive signs of stabilization in the Indian sub-continent and Turkish recycling markets. Steel plate prices and currencies (excluding Pakistan) seem to have reached a temporary plateau, providing some relief amidst the challenges faced by the industry. Nevertheless, the lack of workable Letters of Credit (L/Cs) and financing in Pakistan and Bangladesh is still a cause for concern. The Central Government Bank in Bangladesh is seeking to impose stricter limits on the expenditure of its U.S. Dollar reserves, leading to decreased demand and prices.

The prevailing shortage of tonnage has prompted ship owners with vessels approaching the recycling age to reconsider returning them to service, exacerbating the tonnage shortage further. The monsoon season, while slowing cutting activities, has become the only silver-lining for the sub-continent markets.

Clarkson Platou Hellas, a shipbroker, noted that Bangladesh remains relatively stable compared to other areas in the Indian sub-continent. However, ongoing issues with Letters of Credit persist. India’s price levels softened recently due to the seasonal negative sentiment caused by the monsoon and subdued local steel markets. These prices are not as competitive as those from Chattogram. In Turkey, the market is receiving multiple proposals for E.U. approved recycling, potentially leading to staggered deliveries and questions about capacity. The Turkish Lira is also expected to weaken against the U.S. Dollar during the summer months, which might result in a slight dip in the market. However, if supply slows down, improvements could be seen towards the end of the summer holiday season.