China – Given the weakness in most of the major freight markets, shipyards in China have begun to consider diversification – including vessel repair and demolition. Indeed, Chinese demolition volumes have been expanding of late, and recent events elsewhere may open the door to further scrapping activity in the country.
Traditionally, favourable pricing has dictated that the majority of tonnage has headed to beaches in the Indian Sub-continent. In 2011, Bangladesh, India and Pakistan accounted for 67% of global demolition; however, China’s market share jumped from 7.7% in 2005 to 21% in the first six months of 2012.
Historically, breakers on the Indian Sub-continent have tended to be able to offer a premium on what Chinese scrap yards can pay. At the time of the formation of the Bangladeshi breakers’ cartel in 2007, this spread was as large as US$ 410 per ldt but the price differential has been much narrower since 2009 as vessel supply has expanded.
Indian Sub-continent scrap prices have slid US$ 100 per tonne during the last six months and the premium over Far Eastern prices has virtually disappeared owing to a decline in Indian steel product values and the 24% depreciation of the Indian rupee in relation to the US dollar over the last year, thus making Chinese yards more competitive.
Another factor has been the recent court ruling in India which threatens to ban the entry of any ships not complying with the provisions of the Basel Convention on the international movement of hazardous waste – although the effects to date appear less severe than feared as vessels are still entering the country. But if Indian activity were to be halted, China could stand to increase its market share further.
Total global demolition soared last year as 40.4 million dwt was sold for scrap; a further 28.3 million dwt was scrapped in the first six months of 2012 – thereby exceeding the total volume for the whole of 2010.
In gross tonnage terms, bulkers over 25 years old account for 9% of the fleet, suggesting there is plenty of potential for further scrapping. While the figure for tankers is lower (3.1%), freight markets have been sufficiently poor that some owners have begun to scrap vessels under 20 years of age. Demolition over the course of 2012 as a whole is currently projected to total 55.1 million dwt.
Would you like to share any interesting developments or article ideas with us? Don't hesitate to contact us.