2016 Brings Respite in Ship Breaking Market


By MarEx 2016-04-27 01:20:17

by Hitesh Vyas 

The shipbreaking industry had a stormy 2015. The year started off with high volumes wherein the first four months of 2015 saw a 10 percent increase in the number of ships over the previous year and an increase of 88 percent in light ton displacement (LDT) volumes. The main reason for the increased LDT volume was Cape size bulkers being sent for recycling as a result of the poor freight markets being experienced by the dry sector. 

While demolition market was transacting high volumes, the industry was plagued with falling prices. This resulted in heavy losses both for cash buyers and ship breakers. Falling prices were caused by excess steel produced by China being dumped into global market due to low Chinese demand. The slowing Chinese economy reduced national consumption resulting in a continued excess of Chinese steel production.

The rest of 2015 saw a reduction in sales volume of 33 percent based on number of ships but, due to the higher average tonnage per vessel being recycled in 2015, overall volumes were still higher by 18 percent. Overall, 2015 saw 40 percent more tonnage being recycled than 2014 by light weight.

It was a year of continuous dropping prices which continued right up to February 2016. Over a period of 13 months from January 2015, there was a drop of almost 45 percent. To make matters worse, the drop was erratic with some small rise in April, June and September 2015.  

Measures were taken by countries in the Indian sub-continent to discourage cheap steel imports from China. These included levying duties on imports, but it proved futile as Chinese suppliers countered duty increases with price reductions. Shipowners suffered lower realization too on their vessels compared to previous forecasts based on high prices. They took some time to adjust to the new price levels being seen in the market. 

In the past month we have seen a price increase of about 15 percent over the previous month. Though it must be noted that there had been a 45 percent reduction in price till February 2016 compared to January 2015 prices. Thus current market prices are still 30 percent below January 2015 levels. In view of the slowdown of the Chinese economy, existing surplus steel production capacities and a global slowdown, it remains to be seen whether prices can reach what now seems to be very high levels of $400/LDT. 

The most recent increase is due to an rise in the price of Chinese billets on the expectation that there will be increased demand in steel consumption in China in the second quarter of 2016 as a result of new infrastructure spending. The increase in prices have been swift in past few weeks based on Chinese billet prices, but whether the Indian sub-continent market would be able of accepting the increased prices is key to ensuring stability of recent price increases seen in the market.

Hitesh Vyas is Vice President Middle East and Green Recycling Coordinator at Wirana Shipping Corporation, Singapore.

The opinions expressed herein are the author's and not necessarily those of The Maritime Executive.