Seatrade Maritime – Tough market conditions continue to trouble China’s shipbreaking yards

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15 June 2016 – China’s ailing shipbreaking industry is continuing to face tough operating climate as a result of low steel prices, oversupply of scrap metal and stricter environmental practices, reports said.

Since 2014, China’s ship recycling market has slowed down, and the sector is expected to stay sluggish this year as the yards struggled to make profits, China Daily reported.

Declining steel prices and the rising cost of environmentally-friendly shipbreaking methods are hitting the bottomline of the recycling yards, despite government policies encouraging higher vessel scrapping in response to shipping’s overcapacity.

In December 2013, Beijing introduced a scrap-and-build policy to subsidise owners scrapping vessels ahead of their operational lifespan, and to build a new one as replacement. The policy, originally meant to expire in 2015 after two years, has been extended to 31 December 2017.

Zhang Yongfeng, deputy director of the market research office of Shanghai International Shipping Institute (SISI), suggested that the government can also consider offering tax cuts or grants to those yards buying steel cutting equipment to help them upgrade their operations to be more environmental-friendly.

As China’s steel products are being exported to many developing countries such as Brazil, India, South Africa and Turkey at lower prices now compared to previous years, the price of China’s domestically produced steel has been dragged down, affecting scrap prices at the yards.

China Daily cited figures showing China’s shipbreaking industry revenue falling by 15% year-on-year to RMB3.4bn ($515.6m) in 2015.

China’s ship recycling yards are primarily located in the provinces of Zhejiang, Jiangsu, Shandong and Guangdong, collectively employing around 120,000 workers. With the prolonged downturn of the sector, jobs are under threat.

To make matters worse, the number of bulk carriers and offshore oil rigs being sent for scrap due to their respective sluggish sectors has grown by more than 30% in the past year, adding to the oversupply of the cheaper scrap metal.

Yang Jianchen, general manager of Zhoushan Hongying Shipbreaking, was quoted saying: “The period between 2006 and 2013 was good for the industry. The decline in global steel prices including scrap has pushed many shipbreakers in Zhejiang into the red.”