- Three-week lockdown to slow down the spread of Coronavirus has completely halted ship recycling activities.
- Ships scheduled to arrive at Alang have been issued orders to halt before entering port limits.
- Port authorities not issuing no-objection certificates for ships to enter ports as ship recycling is not an essential industry to be kept operational during the lockdown.
As ICRA says industry perspective has turned negative, Global Marketing Systems, Inc, (GMS) says it’s impossible to give price guidance, reports The Hindu BusinessLine.
Plight of ship breaking beaches
A three-week lockdown was announced beginning March 24 to flatten the curve of the spread of Coronavirus. This has completely halted ship recycling activities at Alang-Sosiya in Gujarat’s Bhavnagar district.
Global Marketing Systems, Inc, (GMS), the world’s biggest cash buyer of ships for demolition said that all sub-continent recycling locations have gone into a complete lockdown, due to the coronavirus pandemic.
Entry to port limits
As ships scheduled to arrive at Alang are yet to reach, orders have been issued to halt those ships before entering port limits.
GMS said port authorities have not been issuing no-objection certificates to enter as ship recycling is not considered an essential industry to keep operational during the lockdown.
First time in history
It added that this is the first time in the history of GMS, all recycling locations closed.
“It is virtually impossible to give price guidance for the sales as no offers / interest / numbers whatsoever have been forthcoming from any market.”
Cheap manpower cost
South Asian yards comprising India, Pakistan and Bangladesh have emerged as the hub (about 80 per cent of the global ship-breaking output) aided by the natural geographical advantage and cheap manpower cost.
Freight rate of shipping vessels
The availability of ships for recycling is inversely correlated to the freight rate of shipping vessels. That in turn is a function of the global demand for seaborne transport and supply of new vessels.
Ship breaker’s revenue
A major portion of a ship breaker’s revenue comes from the sale of ferrous or mild steel (MS) scrap, the prices of which continue to remain subdued in the domestic market.
Impact of coronavirus outbreak
Restrictions on vessels
Suprio Banerjee, Vice President and Head, Mid-Corporate ratings, ICRA, said the outbreak of Coronavirus has caused –
- damage to the freight market,
- placed restrictions on vessels coming in and out of virus hit nations, as well as the trade routes; and
- deliveries in the region.
Outlook turned negative
The outlook for the sector has accordingly turned negative. Any meaningful recovery of scrap prices in the domestic market and stable foreign exchange rates thus remain important, given that the freight markets are expected to continue to suffer leading to steady flow of tonnage for recycling in the near term.
Managing the tough time
The only solace for the thousands of workers engaged in ship recycling is that there are no lay-offs and they are being paid wages.
Zero layoffs endured
Anand Hiremath, Head, Research and Development and Lead Coordinator, Responsible Ship Recycling at GMS said the ship recycling industry in Alang is aiding its workforce by ensuring zero lay-offs.
It added that wages will be paid to the workforce during the lockdown period.
This indirectly addresses the interests of those organisations who use false labour rights allegations to defame the entire ship-recycling industry.
Low operating profit margin
The operating profit margin for the Indian ship breakers has remained low (average 1-2 per cent) during the past few years because of the low value addition, stiff competition from the domestic as well as the competing countries’ players and volatile scrap prices.
The margin is also vulnerable to foreign exchange rate fluctuations as purchase transactions are denominated in the US Dollars, ICRA said.
Further challenges to ship recyclers
Purchase of ships is generally backed by a Letter of Credit (LC) in India. Tightening of banking norms for issuance of LCs to purchase ships, is further adding up to the challenges faced by the Indian ship recyclers.
Mayank Agrawal, Assistant Vice President, ICRA said “The industry players are facing turbulent times currently with volatile scrap/steel plates prices, unfavourable foreign exchange rates and restriction on beaching of vessels, which will lead to increase in the procurement cost. This coupled with unsettling sales/scrap prices, the margins for ship breakers are expected to remain under pressure in the near term.”
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Source: The Hindu BusinessLine