GMS Forecasts Positive Impact of Ratification of Hong Kong Convention in Bangladesh.
In recent news, GMS, the world’s leading cash buyer of ships, has announced the long-awaited ratification of the Hong Kong Convention in Bangladesh. This momentous event has been met with great anticipation and is expected to have a significant impact on the ship recycling industry. While the approval process by the Marshall Island or Liberian Flags is still pending, the imminent entry into force of the Hong Kong Convention marks a crucial milestone for the industry.
Following high-level local meetings, Bangladesh’s ratification of the Hong Kong Convention is now complete, pending approval from the designated flag states. However, Bangladesh’s domestic market has faced challenges with levels and L/C approvals, particularly after the post-budget period. The Central Bank is expected to impose stricter requirements on Chattogram Recyclers for securing tonnage, leading to a lower overall appetite in the market. Additionally, the current market seems to be taking a breather as demand appears to be temporarily satiated and the monsoons settle in. Notably, India’s ship recycling market is not yet on par with Bangladesh, lacking the same level of aggression and demand from local buyers. On the other hand, Pakistan remains out of the buying market due to reasons previously documented. Turkey, facing similar struggles in securing tonnage due to currency and scarcity issues, appears to be following Pakistan’s path.
In terms of Indian fundamentals, the week has seen stability as the Rupee appreciated against the U.S. Dollar and steel plate prices remained firm due to continued demand for raw materials. However, the current levels have not reached the peaks seen last year when the USD 700/LDT mark was breached. Despite this, prices remain historically firm, with rates in the USD 500s/LDT and even close to USD 600/LDT, which are still 30% above the decade’s average. While there is still an aging fleet that needs to be scrapped, many owners are hesitant to sell while they still have time before surveys and can generate charter income. Nonetheless, BIMCO estimates that double the amount of tonnage will be recycled over the next 10 years due to incoming regulations and the order book, compared to the previous decade.
The ratification of the Hong Kong Convention in Bangladesh holds significant promise for the ship recycling industry, particularly in South East Asia where conditions have long been a concern among NGOs. This ratification represents a major breakthrough, making Bangladesh the second destination in the Indian subcontinent, after India, to ratify the HKC. The government’s approval now requires the signature of the foreign minister before the Shipping Ministry can send the ratification to the International Maritime Organization (IMO). Once a major flag state approves the convention, its mandate will be assigned.
According to shipbroker Clarkson Platou Hellas, reports indicate that another major flag state is poised to ratify the convention in the coming weeks. This development will be groundbreaking for the shipping industry as a whole. Despite slight improvements in rates in India this week, the industry is experiencing a typically quiet period with the onset of the monsoon and holiday season. While some recyclers are concerned about the turnover of tonnage available for recycling and its impact on the domestic industry, patience is advised. Globally, there is a general sentiment that toward the end of this year and in the next few years, a substantial volume of tonnage will be directed toward ship recycling facilities. As a result, many yards are willing to wait for the supply of units to increase, which may lead to more favorable purchase rates.
In conclusion, the ratification of the Hong Kong Convention in Bangladesh represents a significant milestone in the ship recycling industry. With the approval process nearing completion, the convention’s entry into force is eagerly awaited. This development, along with potential ratification by other major flag states, is expected to reshape the industry and lead to a surge in ship recycling activities in the coming years.
