Shipbreaking: A Dismal Market with Bright Spots for Bangladesh
The business of dismantling old ships, known as shipbreaking, is currently facing a challenging global climate. However, there are some bright spots, particularly for Bangladeshi shipbreakers.
Low-Quality Ships Attract Bangladeshi and Pakistani Buyers
According to GMS, the world’s largest buyer of end-of-life vessels, Bangladeshi companies are leading the way in purchasing ships for demolition. These ships are often in poor condition, with missing components, low-quality steel, corroded ballast tanks, and permanent ballast (concrete added for stability that cannot be removed). Pakistani recyclers are close behind Bangladesh in terms of buying activity, but they are facing similar challenges with the quality of available ships.
Despite Challenges, Prices Remain High
Despite the generally poor quality of available ships, prices for shipbreaking remain surprisingly firm. This is likely due to a scarcity of available vessels.
Bangladesh Capitalizes on Relaxed Regulations
One factor contributing to Bangladesh’s success is the recent lifting of restrictions on letters of credit. This has allowed Bangladeshi companies to secure a number of deals, including two small bulk carriers in Singapore, the “Lian Feng 6” and the “Yamtai.” These ships were purchased “as is,” meaning the buyer takes responsibility for all existing problems, at prices of $520 and $480 per light displacement ton (ldt) respectively. Additionally, a Chinese feeder container ship, the “Far East Cheers,” was acquired for $530 per ldt.
Pakistan Prepares for Upcoming Regulations
While no sales were reported in Pakistan during this specific period, the easing of letter of credit restrictions there is expected to put Pakistani buyers on a more competitive footing with Bangladesh. However, Pakistan has a significant challenge on the horizon: the Hong Kong Convention. This international treaty, which sets stricter environmental standards for shipbreaking, is due to come into effect in just over a year. As a recent signatory, Pakistan will need to upgrade its shipbreaking facilities and practices to comply with the Convention. This investment is necessary not only to meet international standards but also to keep pace with improvements being made in neighboring India and Bangladesh.
India Faces Tonnage Shortage
The Indian shipbreaking industry, centered around the port of Alang, is currently experiencing a downturn. Following a period of active buying in January, which focused on container ships that met the requirements of the Hong Kong Convention, Alang has become a “ghost town” due to a severe shortage of available ships. This lack of supply should theoretically drive up prices, but that hasn’t been the case.
Turkish Lira Woes Hinder Recycling
Shipbreaking in Turkey is facing its own set of problems. High inflation and a weak Turkish Lira relative to the US dollar are making it difficult for Turkish companies to compete in the international market. Additionally, while import and local steel prices have decreased slightly, they remain high overall. These factors, combined with the strong pricing in Bangladesh and Pakistan, have resulted in a lack of sales in Turkey.
Price Summary: Bangladesh Leads, Turkey Lags
To summarize the current state of the shipbreaking market by price:
- Bangladesh: Container ships – $550/ldt, Tankers – $530/ldt, Bulk Carriers – $510/ldt
- Pakistan: $10 per ldt lower than Bangladesh across all categories
- India: Prices theoretically $20 lower than Pakistan due to a weak market, but no recent sales to confirm.
- Turkey: Container ships – $340/ldt, Tankers – $330/ldt, Bulk Carriers – $320/ldt
While the global shipbreaking market is facing challenges, Bangladesh is currently in a strong position due to a combination of relaxed regulations and a willingness to purchase lower-quality ships. Pakistan is poised to become more competitive but needs to prepare for stricter environmental regulations. The Indian industry is facing a downturn due to a lack of available ships, and Turkish companies are struggling with economic woes.
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