Indian shipbreakers may acquire 230-240 vessels this fiscal for a combined tonnage of 1.9mn mt light displacement tonnage, 5.6pc higher than the 1.77mn mt in the previous financial year.
According to rating agency Crisil, shipbreakers in India may achieve 10-15pc revenue growth in 2021-2022 driven by improved availability of condemned vessels, steady demand for steel, and higher rates for steel scrap.
The economic slowdown due to COVID-19 affected sea freight, harming the viability of shippers and increasing the availability of vessels for dismantling at lower prices per ton, Crisil noted, with a sharp rise in the number of vessels put into shipbreaking witnessed in Q3 2020. The scrap price increases over the past six months have made the business a lucrative one.
In fact, steel scrap prices for shipbreaking have increased 4pc this fiscal period ending March 2021, compared to the previous fiscal period. The heightened prices have increased further through early 2021 and are expected to fluctuate but remain relatively strong through 2021, Crisil indicated.
According to Crisil, the credit profiles of shipbreaking companies will improve due to operating profitability growth. The industry’s interest coverage is expected to improve to 3.5 times this fiscal year compared to 2.4 times in the previous fiscal. This improvement would support the credit risk profile of the industry over the medium term which will also allow opportunities for reinvestment.
India has 150 shipbreaking yards of which 90 sites are HK-certified. Leveraging the certification, India’s ship recycling capacity could double by fiscal 2024. India plans to target more scrap vessels from the EU.
The certification gives Indian shipbreakers an advantage as yards in Pakistan and Bangladesh have yet to be certified. The three neighboring countries dismantle more than 75pc of the ships globally.