Ship-breaking players to profit due to pressure on shipping industry

Ship-breaking players to profit due to pressure on shipping industry
ET Bureau Oct 03, 2018 https://economictimes.indiatimes.com/industry/transportation/shipping-/-...

MUMBAI: Increasing woes for the global shipping industry is a cause of concern for most, but one party has emerged as a clear winner - the Indian ship-breaking industry. With the revival of steel demand and increasing supply of shipping vessels for scrapping, the ship-breaking companies in India, Bangladesh and Pakistan are likely to profit.

The Baltic Dry Index – a global shipping and trading index – has fallen by 90% since it peaked in 2008, pointing to the rising pressure on the global shipping industry, with most of the top shipping companies reporting losses.

India, Bangladesh, Pakistan, China and Turkey are countries where majority of the ship-breaking activity has been happening since 1993 but with China deciding to put a stop to the import of end-of-life ships for scrapping from 2019, the South-Asian ship-breaking industry is likely to profit even further.

The South Asian ship-breaking yards hold advantages of having favourable geography and weather, cheap manpower and less stringent regulation making it preferred destination for ship-breaking activities. In CY2016 and CY2017, while India scrapped the highest number of ships, Bangladesh fared better in terms of gross tonnage (GT).

“The ship-breaking industry in India, Pakistan and Bangladesh is likely to capitalise on the overcapacity woes of the shipping companies and benefit further from the Chinese Government’s decision to stop the import of end-of-life ships for scrapping. Moreover, as a major portion of a ship breaker’s revenue comes from the sale of ferrous or mild steel (MS) scrap, the revival in steel demand and the recovery in international and domestic steel prices (from its FY2016 lows), would improve the ship-breaking industry’s demand and profitability,” said Supiro Banerjee, vice president and head, mid corporate rating, ICRA.

However, the operating profit margins for Indian ship breakers which over the past few years has been low due to low value addition and stiff competition, will remain vulnerable to fluctuating forex rates.

“Rupee depreciation and compliance to stringent environmental norms will continue to exert pressure on the profitability and operations of the ship breaking players,” according to an ICRA official.