Monday, 12 January, 2009

Ship breaking to hit speed breaker

How long can the boom time being experienced by the ship breaking industry last? Not very long according to those in ship breaking! Everything seems to be going in their favour. The recession in the economy has been serving as a driver to enhance availability of ships to be scrapped. Many old ships are being retired and being taken out for scrapping. Besides, the supply of new ships in the global market too is seeing old vessels getting scrapped. But the government is hell bent on bringing in a new regulation which could well bring down the shutters on the ship breaking industry in India.
Confirming the explosive upsurge Mr Pravin S Nagarsheth, president, Iron Steel Scrap & Shipbreakers Association, India, stated that there were over 80 ships being demolished at the Alang ship breaking yard. “In November last year the total number of ships beached at the scrap yard came to 1.6 lakhs light displacement ton (LDT),” he said. “But in December 2008 this number shot up to 2.29 lakh LDT. While in 2007 the total beaching touched 5 lakhs LDT, in this current fiscal we have already crossed 9 lakhs LDT and expect to exceed 12 lakh LDT by March 2009.”
Excepting tankers all types of vessels are being brought in for demolition. According to reports the boom extends even to Bangladeshi ship breaking yards where more such activity exists. “Due to the fall in steel prices, China, a smaller player, too has come into the market,” informed Mr Nagarsheth. “Although Alang could continue to grow within the next three years and also help the entire ship breaking industry in India, there is the doom’s day threat looming large over this industry. A new government regulation is being introduced wherein certification by the Bureau of Indian standard on all steel products will be made mandatory. This would include even the recycled steel viz. re-rollable steel. If this regulation is enforced, our industry would head for closure.”
It has been a long drawn out struggle for the ship breaking industry in India to acquire recognition. The industry was assailed by Green Peace activists and subjected to a number of court cases. In the international arena ship breakers were being cornered out by ship owners while conventions were being framed by international organisations for ship recycling. Now that the International Maritime Organisation (IMO) and the Indian Supreme Court are engaged in preparing guidelines for the ship breaking industry, the government of India appears to have come forward to claim its pound of flesh.
According to a spokesman for ship breakers the imposition of BIS certification is being pressed ahead by the steel ministry with the result once the regulations come into force no steel will be allowed to be sold, marketed or manufactured in the country without the BIS certification.
“Qualitywise we are much better off and the re-rollable steel generated by our industry is of high quality,” contends Mr Nagarsheth. “But for obtaining BIS certification the entire system for obtaining licence, conducting inspection, testing and complying with the procedures is neither feasible nor practical.
“The notification has already been issued in November of 2007 and the last date for implementation is 16th February 2009. There is a tussle between the major producers and the suppliers of the secondary steel market because of which this law is being brought into force merely to please the few major producers numbering about seven to eight in order to wipe out competition from other suppliers and to encourage them to have a monopoly.”
On the other hand imported steel is almost banned, since it has been placed in the negative lists of imports and is put under the licensing procedure. Hence the entire import is almost closed. Besides, second hand steel is not permitted to be imported. If the prime material has to be imported from anywhere in the world the overseas manufacturers have to first register themselves in India, even though the quantity to be imported into India is minuscule. In such a situation how many manufacturers can possibly register themselves in India is a debatable point.
Though there is a crash in prices of ships sold as scrap, yet more of the vessels are being found fit only for the scrapyard with the shipping industry in a crisis. Ship breakers earn around Rs 5,000 per ton of scrap with steel prices plummeting from Rs 32,250 a ton to just Rs 15,000 in six months. In June this year, the price of steel was Rs 33,500 per ton, but it is now down to Rs 20,000, giving breakers a margin of Rs 5,000 per ton.

As it happens there being more than 850 ships available for breaking in the international market. If all goes well, Alang could sell 2.5 million tonnes of scrap in 2009 valued at Rs 5,000 crore, as against its capacity of 4 million tonnes per annum. If margins remain the same, this would mean a cool profit of Rs 1,250 crore.
About 90% of the world’s ship breaking industry is based in Asian countries including India, Bangladesh, China, Pakistan and Turkey. The initiative which Indian ship breakers have acquired could well be lost to other countries. Bangladesh has already surpassed India. Good times which had finally made a come back could well be lost forever. What exactly is the reason for the Indian government to take this foolhardy step of insisting on imposing BIS certification on all steel goods? Why does the ministry hell bent on closing down one industry merely to benefit another?

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