Davis Index: Market Intelligence for the Global Metals and Recycled Materials Markets

Shiprecyclers are eager to book scrapped ships and if supplies remain good, there could be a flurry of ships heading to Bangladesh in November and December, says Mohammad Zahirul Islam, Managing Director, PHP Ship Breaking and Recycling. In an exclusive interview to Davis Index, Zahirul, who heads Bangladesh’s first HKC compliant shipbreaking company, shares his insights about the industry. 


Here are the excerpts from the interview:


Could you share your outlook for Q4?

Shiprecyclers are eager to book scrapped ships and if supplies remain good, there could be a flurry of ships heading to Bangladesh in November and December. This will help the domestic market achieve more stability. Bangladesh was the largest importer of vessels for the last two years. In 2019, it had imported around 2.5mn mt of steel through vessels, but this year due to the pandemic, it is likely to drop upto 1.8mn mt or so. In 2021, it is expected to recover, get back to normal levels.


India is leading the green recycling markets in the subcontinent, however, PHP is the first Bangladeshi start a green recycling company and many others are likely to follow. In Pakistan, the government has given a strong push to the ship breaking with a lot of tax benefits. Pakistan was very active post-COVID after staying away from the ship recycling market for nearly 3-4 years. Chinese recyclers would focus only on Chinese flag vessels and are less likely to start the import of scrapped vessels anytime soon.


How much of a drop in scrapped ship imports was seen during the pandemic?

Bangladesh had two months of national lockdown starting from March 26 onward, but the government allowed in-house operations. All our workers stayed and worked inside the facility during the pandemic period and our facility did not shut down and production continued through the pandemic.


The major impact experienced by the industry was that local prices dropped by $100-120/mt. Many recyclers including us made huge losses as for almost two months there were hardly any deliveries. Interstate movement was also restricted, and it was difficult to deliver scrap tonnages to factories. In the last two months, prices have recovered by over $80/mt, and local demand has improved and is expected to remain strong in the coming days.


From March to September last year, Bangladesh had received 100-120 vessels, however, in the same period this year, only around 30-35 vessels reached Chattogram, so business dropped to one-third this year.  


Could you please brief us, what makes your company, recycling facility in Chattogram stand out in the industry? 

PHP started the ship recycling business in 1982. A lot of improvement was needed — apart from the traditional way of recycling — we upgraded this facility with an investment of about $7mn. PHP is the first ship recycler to receive a statement of compliance under the Hong Kong convention in 2017. Initially, PHP received SOC from RINA and in 2020 they received ClassNK compliance. PHP can recycle upto 200,000mt per year and we sell 100pc of our material in the domestic market and to local vendors. PHP has a rolling mill, but we are not into billet manufacturing and procure separately from the domestic market. 


What advantages does the Bangladeshi shipbreaking industry have?

Bangladesh attracts more large size vessels than any other markets. Steel industry in Bangladesh is largely dependent on ship recycling. No steelmaker in Bangladesh uses iron ore and 30-40pc of the steelmaking material for the secondary sector comes from ship recycling. In the case of Pakistan, the dependency is at 10-15pc, while in India it is lower than 10pc. As demand is high, Bangladeshi recyclers opt to bid higher and can import large-size vessels. However, the Bangladeshi government has banned cruise ship recycling due to hazardous wastes like asbestos that comes with it. 


PHP focuses more on supplying materials to the secondary steelmakers than large mills like BSRM, AKS and GPH. These mills go for bulk ferrous scrap bookings for their regular productions. While small and mid-size steel producers prefer to book materials from the shipbreakers. With tight supplies and demand improving, scrap prices have recovered sharply. However, domestic finished steel prices have not improved at all as the government projects have not yet resumed fully.


Post COVID-19, Bangladesh’s steel industry has been struggling with weak finished steel demand. In your view, what factors could drive domestic steel demand?

While recovering from the pandemic, Bangladesh was also impacted by heavy rains and floods. With the end of monsoon, demand is expected to improve. Most mills had to shut operations due to heavy floods around Dhaka. In the next six months, the consumption of steel is likely to be led by government-funded infrastructure projects rather than private projects, which are less likely to receive funding anytime soon. Government-led projects like bridges, accommodation and housing projects could drive steel demand in the country. 


How are government policies supporting the industry? What changes does the industry seek?

Bangladeshi government focuses majorly on the garment industry for economic growth as it is the highest foreign exchange yielding industry. Due to this garment industry receives maximum policy support. The steel industry also seeks a similar policy support from the government.


Amid weak local demand, a few major steelmakers opted to sell billets at low margins or even at a loss just to sustain themselves. Many large producers offered materials in the domestic market making steel plants with lower capacities less competitive. But as smaller mills have limited investment, they were in better positions with limited risks. 


The Bangladeshi steel industry is already operating at overcapacity and oversaturation. If the proposed plants by BSRM and Bashundhara Group start production, it will pose a significant challenge for the industry. 



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