Recession has proved a boon for the ship recycling industry at Alang in Gujarat, which is seeing one of its busiest days with companies docking vessels for disposal to avoid a downturn in freight rates.
The world’s largest graveyard of ships in terms of capacity, Alang completed recycling 5,000 vessels a few weeks back since its beginning in 1982.
“Around 281 ships of 23,92,558 light dead weight tonne (ldwt) have been recycled this financial year. Another 125 ships are being broken for recycling at different yards,” said the Ship Recycling Industries Association of India, which represents 160 recyclers based at the breaking port.
This is up from 264 ships of 19,43,771 ldwt recycled in the last financial year and 136 vessels of 6,43,437 ldwt recycled the year before. Alang had its highest ever business 11 years ago in 1998-99 with 361 ships of 30,37,882 ldwt recycled. Since then, business kept dropping till 2007-08.
“Business suffered as Bangladesh and Pakistan gave better returns due to their lower tax regime and higher demand for scrap in those countries,” said Vishnu Kumar Gupta, president of the association. “We can do well if the government abolishes the effective 5 per cent custom duty levied on ships which we buy for recycling,” he added. Karachi (Pakistan) and Chittagong (Bangladesh) offer $25-50 more on every ldwt. The recycling business in Alang revived in the last two years as freight rates dropped to a 22-year low.
“With rising steel prices, lower cost of vessels and the deadline on use of single hull tankers are prompting companies to sell old and inefficient ships globally. In India, Shipping Corporation of India, G E Shipping and Mercator Lines plan to scrap 14 vessels this year,” said an industry source.
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The International Maritime Organisation has issued guidelines, which prevent single hull tankers more than 25 years old to be used after December 2010. All such tankers are banned from international waters from 2015-end.
Mercator Lines plans to sell four single hull tankers this year. It is also considering to replace its old Panamax ships of 60-65,000 dead weight tonne (dwt) with new ones of 90,000 dwt. Mercator has 12 bulk carriers. “Old vessels are not sustainable in the low freight rate regime,” said H K Mittal, chairman and managing director, Mercator Lines. It expects the Baltic Dry Index to touch 3,500 this year, down from the peak of 11,700 in 2008.
“We need vessels with more efficient engines which consume less bunkers,” said Mittal. He is encouraged to sell as, “steel prices have started recovering, giving good returns on selling old ships. Currently, scrapped ships yield $380-400 per light weight (light displacement tonne or per tonne for ship without cargo). This is up from $250 a couple of years back.
Shipping Corporation of India, the state-owned largest shipping company, plans to sell six single hull tankers this year. It has 36 vessels, out of which six are single hull tankers. GE Shipping may sell four vessels.
Alang, which used to dismantle over half the world’s ships broken in a year, has the advantage of docking close to the shore due to its geographical position. The yards at Alang are enhancing their safety measures and going for greener solutions.