Ship-breaking still in rough waters despite import uptick
The disparity between international and local markets is making it harder for entrepreneurs to make a profit
The ship-breaking industry in Bangladesh, a global leader in the sector, continues to face headwinds as new challenges have emerged after the dollar crisis improved a bit.
Despite a slight increase in ship imports during the first half of 2024, the industry is still struggling after experiencing its lowest import volume in a decade in 2023.
Factors such as high price of dollar, disparities between international and local markets, reduced number of ships available for scrapping due to increased shipping freight costs, and the central bank's instruction to obtain permission for opening Letters of Credit (LC) for amounts exceeding $3 million have all impacted imports, even though dollars are available in banks.
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Due to the high dollar price, the local value of the ships has gone higher. But the price of scrap in the local markets has gone down, causing a disparity between international and local markets. As a result, the ship-breakers are afraid of importing ships.
According to the Bangladesh Ship Breakers and Recyclers Association, only 74 ships weighing a total of 4,08,835 tonnes were imported in the first six months of the fiscal 2023-24, from July to December.
In contrast, the next half of the fiscal year, from January to June, saw a slight increase with 91 ships weighing 5,66,260 tonnes. However, this is still lower than the 6,12,975 tonnes imported during the same period in 2023.
Overall, the fiscal 2023-24 saw the import of 165 ships weighing 9,75,095 tonnes.
Despite a 65% decrease in ship-breaking activities, Bangladesh maintained its position as the top ship recycling nation in 2023, according to a report by the United Nations Conference on Trade and Development.
The NGO Shipbreaking Platform reported that 446 ocean-going commercial ships and offshore units were scrapped in 2023, with 173 dismantled in Bangladesh.
In 2021, during the Covid-19 pandemic, 280 ships weighing 21,28,597 tonnes were imported. The next year imports drastically decreased to 150 ships weighing 11,45,234 tonnes.
Impact of economic factors
The disparity between international and local markets is making it harder for entrepreneurs to make a profit. While the price of scrap ships has increased internationally, the local market price for scrap steel has decreased as many rerolling and steel mills have shut down due to raw material shortages.
Mohammed Zahirul Islam, vice president of Ship Breakers and Recyclers Association and managing director of PHP Ship Breaking and Recycling Industry, told TBS, "Due to the high dollar price, the local value of the ships has gone higher. But the price of scrap in the local markets has gone down, causing a disparity between international and local markets.
"As a result, the ship-breakers are afraid of importing ships."
He added, "Once we used to import ships weighing 30,000 to 40,000 tonnes. But now we have to import ships weighing 3,000 to 6,000 tonnes as we have to wait a long time to receive permission from the central bank if the LC value exceeds $3 million.
"Importing small ships causes losses due to their high waste percentage. However, we must import them to keep our yards operational and ensure wages for our workers and staff."
Mohammad Nur Uddin Rubel, managing director of NR Ship Recycling Yard, pointed out the impact of global conflicts on the industry. "The Russia-Ukraine war affected us in 2023," he noted. "This year, the Israel-Palestine conflict is also affecting us," Rubel added.
"Due to these conflicts and the Houthi attack on a merchant ship in the Red Sea, shipping freight costs have increased significantly in recent months. This has allowed shipping companies to avoid selling their old ships for scrapping," Rubel explained.
"Consequently, the price of scrap ships has recently risen, discouraging ship-breakers from importing fewer ships for recycling."
"The shortage of ships available for scrapping has driven up prices in the international market. Bulk carriers now cost $510-530 per tonne, tankers $530-550, and cargo vessels $550-570," he added.
Industry challenges and transformation
More than 50 shipyards have closed in recent years, with another 20 ceasing operations in the last year and a half. The remaining yards are facing uncertainties, and industry participants believe it will be very difficult for the sector to survive without government cooperation.
The industry is also undergoing significant transformation, with four yards receiving "green yard" certification involving substantial investment. Additionally, 10 other yards are in the process of transformation.
However, Bangladesh faces a challenge in converting all ship recycling yards into green yards by 2025, as required by the Hong Kong International Convention for the safe and environmentally sound recycling of ships.
Abu Taher, president of Ship Breakers and Recyclers Association, said, "We have been working hard to transform the industry to green by 2025, which involves substantial investment. As a result, ship-breakers are now lacking funds to import ships, contributing to the decrease in imports."
He sought government support to boost the industry, which has a market value exceeding Tk10,000 crore.
Import over years
According to Ship Breakers and Recyclers Association data, 227 ships weighing 26,05,099 tonnes were imported in 2014. Although imports slightly decreased to 24,88,844 tonnes the following year, they peaked at 34,05,068 tonnes in 2016.
Import figures for the subsequent four years (2017-2020) were 21,28,763 tonnes, 25,40,178 tonnes, 23,60,714 tonnes, and 20,39,666 tonnes, respectively.
