The ship-breaking industry of India is up for a major boom as shippers are procuring 230-240 ships. Indian shipbreakers will be acquiring ships with a combined tonnage of 1.9 million light displacement tonnage (LDT). This is a sharp rise from last fiscal year’s acquisition of 1.77 million LDT tonnage from 214 ships
This will increase India’s ship-breaking revenue by 10%. All this has happened courtesy of improved availability of condemned ships aided by higher steel scrap rates, revealed Crisil rating agency. India’s Shipbreaking industry has gained credibility after India joined the Hong Kong Ship Recycling Act in 2019. This ensures that India follows International standards for ship recycling and doesn’t pollute the environment.
According to Crisil report, the pandemic has increased the work of the ship-breaking industry as more ships are headed for scrapping. This resulted in a rise in ship breaking in the second quarter from July 2020. The usual ship procurement rate is USD 20-30 per tonne which is quite higher than the steel scrap rate, which makes Shipbreaking an unprofitable business.
However, there is profitability in this business as non-ferrous metals, oil, furniture, etc from ships attract high value. 30% of a ship is nonferrous products and the rest is steel. These non-ferrous products when sold give enough revenue to balance the loss.
“The procurement price of ships condemned for dismantling was down by over USD 75 per tonne, averaging at about USD 320 per tonne for the first six months in the current fiscal, when compared to the corresponding period of previous fiscal, thereby making it lucrative for shipbreakers”, said Crisil report.
According to Rahul Guha the director of Crisil Ratings, “Indian ship-breakers are set to procure between 230 and 240 vessels, with a combined weight of over 1.9 million light displacement tonnage (LDT) this fiscal, compared with 214 vessels weighing 1.77 million LDT bought last fiscal”
“Meanwhile, steel scrap realization has also improved to Rs 27,624 per tonne on average this fiscal compared with Rs 26,558 per tonne last fiscal. As a result, the industry’s revenue is likely to increase 10 percent on-year”, he added.
The government estimates that the ship recycling capacity will double by 2024 as more vessels from Europe head to India.
This will help the domestic industry to lessen the gap between India and the neighbouring countries.
“Of India’s 150 ship-breaking yards, 90 are HKC-certified, giving it an edge over its closest competitors, Pakistan and Bangladesh, which have not yet acceded to the HKC. These three Asian neighbours dismantle more than three-fourths of the ships globally” Crisil said.
“While steady demand for steel and continued momentum in vessels beaching for dismantling would drive industry revenue up 10-15 percent annually next fiscal. This will bolster the overall credit risk profile of the ship-breakers over the medium-term”, said Neha Sharma, Associate Director, Crisil Ratings.
The Government has reduced the customs duty on imported steel in the budget. This will help in attracting vessels from China at softer rates
“Increasing trade volumes in the post lockdown period, has sent freight rates soaring, thereby bringing back lucrativeness in sailing vessels,” said the press release.
Ship dismantling was restrained which led to steady procurement rates in the last few months. This in turn will moderate operation profitability next year.