dna – With Narendra Modi as PM, ship graveyard in Gujarat hopes to break new ground

(Written by Anto T Joseph)

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16 May 2014 - At Alang, around 50km off Bhavnagar in Gujarat, the world’s biggest graveyard for junk ships is awaiting Narendra Modi’s coronation.

Just like the stock market where traders have gone crazy and Sensex has lost the sense of gravity, the thriving market for decommissioned ships has reached the stratosphere and deals are being struck at a premium — mostly over $500 per tonne, more than 30% year-on-year. There is uncertainty over long-term viability of the business and falling steel prices (ships are demolished to make steel plates sold in the secondary market), but a clear NaMo wave is sweeping across the dirty, oily beaches of Alang-Sosiya.

Buoyed by the rupee strengthening and the prospect of higher demand for steel, the multi-billion market is busy striking deals.

At present, around 80 ships are being demolished at Alang’s yards. Ship breakers believe that once the NDA government is sworn in, the sector will see a steady improvement in sentiments.

“We are all excited. We look forward to Modi reshaping the Indian economy. India has been undergoing a bad phase,” says Nitin Kanakia, a ship breaker and joint secretary of Ship Recycling Industries Association, India (SRIA). According to him, around 60-65 yards, out of a total 138, are working at present. “Prices have shot up from $380-400 per tonne to over $500 in 12 months.”

Last week, a container ship Messologi (23,740 tonne), controlled by the Greek shipping giant Danaos, was sold for a firm $515 per tonne, the fourth sale from the group this year, according to a report by GMS, world’s largest trader of junk ships. Another ship from Danaos, Mytilini (23,366 tonne) was sold for $509 per tonne two weeks ago. Another Italian owner has committed both their sister ships (roll-on roll-off) Jolly Verde and Jolly Rosso (both 13,696 tonne) ‘as is’ Jebel Ali, for $500 per tonne, with extra payment for bunker oil.

Similarly, PIL of Singapore has sold container ship Kota Wirawan (6,811 tonne) at $513 per tonne.

Shashank Agrawal, group legal advisor of Singapore-based trader Wirana Shipping Corporation, told dna that rupee is expected to strengthen. “Everyone hopes that steel prices would increase, riding the increasing demand amid an infrastructure push. Demand for old ships will definitely see an increase,” says Agrawal.

He also predicted an increase in disputes and court cases related to ownership and posession of ships, and unpaid wages and dues to suppliers.

Kanakia says while the rupee has strengthened, there is no corresponding increase in steel prices in the secondary market. “Prices are ruling at Rs29,500 per tonne, around Rs2,000 more year-on-year,” he says, discussing the non-viability of the business in the current scenario.

While ship breakers and cash buyers are eagerly looking forward to a Modi government in New Delhi, a few others have raised concerns as well. “Modi, the chief minister of Gujarat, also holds shipping portfolio.

Under his tenure, governance at Alang has seen a steady decline. For instance, the process of allotting plots on Alang beach has become ad hoc, leading to corrupt practices. Issues related to safety and pollution are still given a go-by. In April, four workers from Odisha were crushed to death at the yard,” says Gopal Krishna, convener of NGO Toxics Watch Alliance.

He says global shipping companies have turned Alang into the most polluted beach in the world with the complicity of Gujarat and the central government. “Gautam Adani’s group company has proposed to set up a ship recycling yard at Mundra. If the Modi government comes to power, Adani’s proposal, which is awaiting a final nod from the environment ministry, will surely get a shot in the arm,” he adds.