The number of ships coming in for recycling could see a decline as Chintan Kalthia, Managing Director of R.L Kalthia Shipbreaking feels only limited ships will head towards the shipbreaking yards in the coming years. In an exclusive interview with Davis Index, he shared his insights on the current situation of the shipbreaking in Alang amid the COVID-19 crises.
How much has the production activity been impacted due to shortage of oxygen? What are the measures taken at yards to stabilize production?
There were 80 oxygen plants which used to refill the cylinders in Alang but were not operational since last 4-5 years and since then Alang has shifted to direct supply of liquid oxygen from 3-4 suppliers. The balance of supply to production’s demand was maintained with ease without any interruptions. However, with rising COVID-19 cases, the priority of supplying oxygen shifted to medical needs. Even though the ‘shortage’ for recycling operations was just for the namesake, the situation is getting better along with production margin of recycling units.
Yards have not cut their production on account of this situation for a single day. The local oxygen suppliers have their monopoly and they smartly increased the prices by 4-5 times due to the COVID-19 situation and government’s pressure to supply LOX (Liquid Oxygen) to the hospitals. Hence, I could say there was no shortage of LOX in Alang but due to the monopolistic markets, we had to spend more on the cylinders.
Why do Bangladesh and Pakistan take more large-sized vessels than India?
As green ship recycling is increasing, there are more standard operating procedures needed to be fulfilled. India is 95pc HKC compliant and yards need to fulfil all regulations while recycling, although suppliers need not to worry about HKC standards and are concerned only about higher bids.
Pakistan and Bangladesh are HKC compliant, keeping their price very competitive compared to India. These countries have cheaper labour costs, have limited infrastructure, in many cases they do not follow hazardous material recycling, all these factors contribute to less overall cost for shipbreaking activities.
For Indian yards, cost goes high due to high standards. But many suppliers just compare the final prices being quoted and prefer to sell to Bangladesh and Pakistan.
Do you see any direct impact of global ferrous scrap prices on shipbreaking activities?
I don’t see any direct impact of shipbreaking on the ferrous market. Shipbreaking is a subset market for the global ferrous scrap market having less than 2pc share of whole volumes. Thus, it follows global HMS scrap prices.
What could be the price trend for scrapped ships in the last quarter of 2020?
I don’t see any major movement either side in shipbreaking import prices in the coming quarter. Post COVID-19, eventually both supply and demand started recovering in parallel. When a few yards had resumed activities and thus increasing supply, a few infra projects started on the demand end. The overall situation is balanced and likely to remain so.
Also, the global shipbuilding market had dropped to record low due to the pandemic lowest in last 25 years. It indicates that there would be limited number of ships coming for recycling activities for next couple of years. There is lack of support from the global shipbuilding market which is another major driver for shipbreaking activities.
Turkish shipbreakers are booking large number of ships for shipbreaking. What regions does India mostly get ships from and on what do we focus?
Pakistan and Bangladesh are unlikely to book any cruise ever due to non-workability of their natural sea bed that is unfit for high draft ships like cruise. Maintenance of cruise ships is very expensive. There are around 300 cruises available around the world and only 5-6 cruises have headed towards Turkey, creating a lot of curiosity among industry participants. India imports the largest number of ships from Europe, in addition to Brazil, Japan and the US.
Any upcoming plans or strategies?
We are trying to upgrade our facilities on a daily basis, however, in order to compete with the EUSRR norms there is not enough level playing on a global scale. So, Indian shipbreakers are less viable compared to other destinations. Since the last five years, we are HKC compliant and every sector is playing its part in the growth of the industry. The ship owners’ involvement in the green ship recycling is still limited to some extent and we hope in future the industry will see more involvement from ship owners towards green ship recycling.