2012 saw a record 57.5m dwt scrapped globally. This was a y-o-y increase of 34.9% in demolition volumes, and compares to an average of 19.5m dwt demolished from 2005-2011. This month's Shipbuilding Focus looks at where tonnage has been recycled over recent years. Breaking it up… As illustrated by the Graph of the Month, demolition volumes have increased substantially following relatively low levels of scrapping during the shipping market boom from 2004-08 when even older tonnage was finding employment. Since the onset of the recession in late 2008, oversupply in the major markets, a poor earnings environment and a greater propensity to remove over-aged and inefficient tonnage from the fleet, have increased demolition activity. In 2012, India, Bangladesh, and Pakistan, traditional recycling destinations, took record scrap volumes of 19.4m dwt, 13.7m dwt and 10.1m dwt respectively. In China, demolition totalled 11.1m dwt in 2012, and Turkish breakers contributed 41.2% to the 3.2m dwt scrapped by ‘Other’ nations.
Packing it away…
Pakistan’s share of demolition volumes has varied widely over the last decade. Economic and political instability, as well as severe flooding in 2012, have limited Pakistani breakers’ activity, particularly in 2004-08, when its average share of global demolitions fell to 4.2%. However, greater stability in 2012 has seen their share of global scrap volumes increase to 17.6%, up by 5.5m dwt y-o-y.
Bangladeshi breakers took the second largest share of scrap volumes, 23.8%, in 2012. This share has fallen since 2004-08, when it averaged a 58.4% share. The reduction in share has been caused by environmental disputes and court action which limited Bangladeshi breakers’ activity. However, as these issues subsided, they scrapped 13.4m dwt in 2012, despite a shortage of dollars limiting the availability of Letters of Credit. Meanwhile, Indian breakers’ share of scrap volumes has been fairly constant since 2007, when it rose by 10.3% to 24.8%. In 2012, despite a volatile rupee, Indian breakers took 32.6% of global scrap volumes, making it the top demolition destination for the third year in succession.
Selling it on…
In 2012, Chinese demolition volumes reached their highest level since 2003, accounting for 18.9% of global scrap volumes. As the lines on the graph show, the Far East and Indian Subcontinent scrap metal price differential had once disadvantaged Chinese breakers, however, between 2007 and 2009 the differential declined from $260/ldt to $20/ldt raising Chinese breakers' share of scrap tonnage from 5.7% to 19.4% respectively. Proposed incentives for Chinese owners to scrap domestically and the environmental credentials of its breakers, could see their share of global scrapping rise in coming years.
Looking ahead to 2013, challenging market conditions promise another busy year for shipbreakers. However, as this analysis shows, who will benefit from this is far from clear. With Pakistan and Bangladesh regaining ground, and greater competition from Chinese breakers, along with India's consistent strength, there could be a real scrap for market share.