Worst Is Over For Global Ship Recycling Industry says GMS

09 January 2017

GMS, the world’s leading cash buyer of ships declared that the worst seem to be over for the ship recycling industry, as more yards came online during the course of 2016, as the market gradually settled down to healthier levels. In its annual review, GMS noted in its final report for 2016 that “it has been another extraordinary rollercoaster week (and year overall) in the international ship recycling markets. The markets witnessed crippling declines during the first quarter of the year as prices slid down from their mid-2014 peak above USD 500/LT LDT, down to the very low USD 200s/LDT – a decline of over 50% in asset values! Just as many were predicting the end of recycling markets as we know it and calamitous declines into the USD 100s/LDT were feared (to echo the nadir of the 1980s shipping recession), the markets made a remarkable recovery to storm almost USD 100/LDT higher and rise above USD 300/LDT levels again”, said GMS.

According to GMS, “the next three quarters saw varying degrees of ups and downs but the year ends on a comparatively positive note as steel prices have overall rebounded across the globe (particularly in China) and currencies have stabilized after a tumultuous 2016 (as in Turkey). Many yards had suffered foreclosures and bankruptcies in the wake of the significant price corrections since 2014, but this year has finally seen plots get back on their feet and banks have been more willing (even though it remains relatively challenging) to sanction new LCs as recyclers got back to business and started filling their yards once again”.

As such, GMS concludes in its annual review that “it will therefore be interesting to see just how 2017 begins, but it does seem like the worst is over as the industry wraps up 2016 on an overall stable to positive note, with scope for further optimism and improved performance in the year ahead! Meanwhile, given Christmas and New Year holidays over the last couple of weeks, the markets remained relatively quiet and no market sales were noted in most major recycling destinations this week”, concluded GMS.

According to the report, “the Indian ship recycling market has endured more than its fair share of woes this year with declining steel plate prices, a depreciating currency and a decommissioning of all Rs. 500 and Rs. 1,000 notes, amongst the key tribulations to deal with over the course of 2016. The chief concern at the start of 2016 surrounded the incessant import of cheap Chinese billets, which had seen market levels more than HALVE in India and many end buyers subsequently went out of business, unable to repay their ship loans to the banks. These banks then tightened lending further; refusing to sanction new LCs until a portion of the previous LCS had been repaid. In the wake of the credit shortage, plots started to close down and only about 25 – 30 end buyers were left open to acquire tonnage, albeit it at significantly reduced rates in the early part of the year, as some of the pessimistic few started to predict a possible end of the recycling market in India. However, things did start to get better. Halfway through the year, an improving Chinese demand greatly reduced Chinese steel exports, largely curtailing what was a significant problem for the international recycling markets. Moreover, a rebound in Indian steel plate prices and a stabilizing currency saw many Alang buyers get back on their feet, which in turn encouraged banks to ease up on the lending and over 100 yards came back to the table as the market opened up again. The final weeks of the year once again displayed their true volatile nature as the Indian markets went through another round of sharply declining local steel plate prices last week, coupled with a weakening Indian Rupee (trading at over Rs. 68.5X against the U.S. Dollar). As a result, most buyers started rolling back their offers once again and some were even too afraid to quote on levels as the week ended. Although many in India are expecting this recent fluctuation to be short-lived and the coming week is likely to be better (in terms of improving local steel plate prices), we can only hope that the current levels prevail and the recent revival continues well into 2017”, concluded GMS.

Source – Hellenic Shipping