The domestic ship-breaking industry, which incurred losses in the past two months due to falling scrap prices, is finally looking for better profit margins as the cost of purchasing old ships has fallen.
The Baltic Dry Index, the global benchmark for freight rates of dry bulk carriers, has dropped 93 per cent from its all-time high of 11,793 about six months ago. Industry analysts believe that it may force ship-owners to keep a fifth of their fleet idle.
“It is a lifetime opportunity for ship-breakers to make money,” said Harish Patnaik, chief general manager, State Bank of India. The bank provides letters of credit to ship-breakers who purchase most of the old ships from foreign ship-owners.
According to SBI, ship-breakers are making losses of Rs 3-15 crore on the vessels purchased two months ago as scrap prices have dropped and the rupee has depreciated. “Soon ship-breakers are going to overcome these losses and make profit as freight rates remain low,” said Patnaik. Currently, old ships are available at $250 (Rs 12,500) a tonne.
As a thumb rule, the cost of breaking a ship comes to Rs 1,000 a tonne. And these scraps are being sold in the market at an average price of Rs 20,000-22,000 a tonne, giving ship-breakers a minimum margin of above 40 per cent.
Till two months ago, these ships were bought at $750 a tonne and scraps were being sold at Rs 30,000 a tonne. The scrapping process takes about six months and the rupee has depreciated by about 25 per cent in that period. Besides, scrap prices have come down by 27 per cent in the last two-three months, giving ship-breakers a tough time on purchase of old ships.
However, the fall in prices of old ships have changed the scenario. The Ship Breakers Association of India, an industry body, is expecting a three-fold jump in the total weight of ships to be broken in FY09 from previous year’s half a million tonnes.
