Ship Recycling: The Indian market is still sluggish
GMS, a leading authority in ship recycling, has released its latest update on the industry. Despite the end of the Chinese New Year holidays more than a week ago, the global ship-recycling markets are still sluggish due to a persistent shortage of available ships. This shortage is expected to continue until Spring.
Many in the industry were hoping for a rebound in recycling volumes before the start of the year, but unfortunately, this hasn’t happened. Ship recycling markets in Turkey and India are lagging, while Pakistan and Bangladesh have been leading for over a month. These countries are competing for business amid a dwindling supply of vessels and rising freight rates, driven by unexpected geopolitical concerns in 2024.
Although the shortage persists, there are some positive developments in Bangladesh and Pakistan. Both countries recently eased financial restrictions and letter of credit (L/C) limitations that had been imposed by their governments for the past six months. These restrictions had virtually shut down the entire Gadani ship recycling sector in Pakistan. With these restrictions lifted, both countries are witnessing a surge in demand from local recyclers. However, the current supply shortage is not enough to meet the renewed demand in any market.
Looking at the broader picture, elections are upcoming in India next month, following recent elections in Pakistan and Bangladesh. These elections, along with the ongoing political uncertainty in the region, have impacted the ship recycling industry in recent years. The hope is that with the elections settled, established recyclers can resume their operations and potentially see an improvement in the market by Spring, before the monsoon season begins.
Meanwhile, the Turkish market continues to struggle with economic difficulties and a weakening currency (Lira). This is further compounded by the high asking prices for Turkish ships, making them less competitive in the current market.
Finally, the supply of containers for recycling remains below expectations. Ship owners are holding onto their aging container ships, taking advantage of profitable trade routes impacted by the ongoing conflict in the Red Sea. This, in turn, contributes to the overall shortage of vessels available for recycling.
Despite the ongoing shortage of ships, there is some positivity in Bangladesh and Pakistan. Financial hurdles and restrictions on letters of credit (L/C) imposed by their governments in late 2023, which nearly shut down the Gadani ship recycling sector, have recently been eased. This has led to a growing demand for recycling in these locations. However, there still isn’t enough supply to meet the demand in any market.
Political uncertainty and unrest have been prevalent in sub-continent ship recycling nations in recent years. With elections approaching in India next month and having recently concluded in Pakistan and Bangladesh, there is hope that this uncertainty will settle, at least until the next election cycle. As a result, recyclers are eager to resume their search for ships to recycle, hopefully leading to better conditions in the industry.
In Turkey, economic challenges persist as the value of the Lira continues to decline. Despite this, ship prices in Turkey have remained relatively stable.
The supply of containers for recycling, which is one of the slowest sectors, has yet to increase significantly. Owners are still operating aging container ships, taking advantage of trade routes affected by the ongoing conflict in the Red Sea and benefiting from the strong charter market. Recycling prices in the sub-continent have also remained steady at around USD 500 per light displacement ton (LDT), with no significant changes expected shortly given the current market conditions.
Overall, the ship recycling market faces a complex situation. While there are some positive developments in certain regions, the shortage of available ships, coupled with ongoing economic and political uncertainties, continues to impede a significant recovery. The industry may not see a substantial improvement until the supply of ships increases and other market factors stabilize.
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