Currency Turbulence Having an Impact on the Ship Recycling Market

The ship recycling market has been facing some headwinds of late, as a result of the dollar’s rally. In its latest weekly report, shipbroker Clarkson Platou Hellas said that “with the U.S. Dollar strengthening globally, concern remains in the Indian sub-Continent with their financial woes affecting sentiment. There have even been whispers emanating from Chattogram this week that the Letter of Credit issues currently being witnessed will not be resolved until next year. It is like a lottery for the cash buyers where they are unsure whether a Letter of Credit can be opened for any available tonnage. It remains a case-by-case scenario, but some cash buyers are still willing to take a gamble. Latest reports from Bangladesh suggest that the weakening taka and lack of foreign reserves may soon pave the way for some loan agreement to be decided with India by way of some rupee loan line. This therefore confirms the difficulties currently being experienced at this destination and the extent of the potential damage that could affect the recycling industry going forward. Marginal falls in price levels from all recycling destinations in the Indian sub-Continent have been witnessed this week which may result in the current market conditions not being sustainable. Interestingly, looking through the data of the capesize bulk carriers that have been reported sold for recycling this year, almost 50% are still yet to arrive to the final recycling destination proving that the actual recyclers will still have some wait to view tonnage arriving to their shores. Therefore, this lack of supply may force recyclers to increase their own price levels to avoid continued emptying yards”, Clarkson Platou Hellas concluded.

In a separate report this week, Allied added that “things in the ship recycling market currently indicate some signs of decline, given the fragile fundamentals prevailing across most of the main demolition destinations. In the Indian Sub-Continent and specifically Pakistan, the road appears rather long in order for any form of stability to take shape. Given the currency depreciations, coupled with the lack of momentum in steel plate prices, as well as, the general economic turmoil, especially after the recent floods, it is highly unlike that we will witness any firm presence from local Buyers at this point. In Bangladesh, the state of the market seemingly has taken a further step down as of late, with local breakers, amidst other fundamental pressures, continue to face L/C restrictions. In India as well, we failed to see any considerable flow in activity, given the problematic trend in fundamentals, combined with the stringer availability in demo candidates, especially at these offered numbers”.

Meanwhile, GMS (www.gmsinc.net), the world’s leading cash buyer of ships said this week that “sentiments have softened across sub-continent markets once again this week, as Buyers appear increasingly reluctant to commit on fresh tonnage whilst fundamentals remain so shaky – especially as the markets have witnessed across the last couple of weeks, where currencies and steel plate prices took turns in tumbling. The Pakistani Rupee has breached historical lows and despite the odd flash of appreciation, has given Gadani Buyers extreme discomfort over the course of a torturous year of monumental declines. Bangladesh, likewise, has suffered a currency calamity of its own, coupled with declining steel plate prices and increased limits on establishing fresh L/Cs due to a dire shortage of U.S. Dollars in the country, most Chattogram Buyers are holding back or simply unable / unwilling to offer at all on any of the freshly proposed units. India has lost about USD 80/LDT on steel prices over the last several weeks and despite gaining a marginal USD 5/Ton this week, remains under pressure as the lowest placed of all sub-continent markets once again. The Indian Rupee has also crossed the psychologically worrying Rs. 80 mark, leaving Alang Buyers as worriedly cautious as their competitors. Finally, the Turkish market remains depressed and unchanged for yet another week, as there are no units available to this market and at these current levels, most Owners / Cash Buyers wouldn’t commit their units to Aliaga Buyers anyways. The supply of tonnage in the sub-continent had started to marginally improve but remains relatively strained as all freight sectors continue to perform, leaving demo markets starved of vessels once again. Prices therefore remain stranded below USD 600/LDT for another week with little chance of crossing that psychological barrier any time soon. The tendency indeed seems to suggest that levels will cool off again (perhaps down to the low USD 550s/LDT) in worrying signs for the recycling markets once again”, GMS concluded.
Nikos Roussanoglou, Hellenic Shipping News Worldwide