(Written by Piyush Pandey)
30 March 2013 - MUMBAI: A slump in global shipping, reflected in the falling Baltic index (a freight indicator), is translating into brisk business for Gujarat’s coastal town of Alang which has become synonymous with ship-breaking. Alang, which receives one out of every two ships destined for breaking, has retained the top slot amid stiff competition from Pakistan, Bangladesh and China. With freight rates dropping 98% in less than six months of the peak shipping period, Alang is expected to surpass the 435 ships demolished in 2011-12.
“Last year, over 40 million dead weight tonnage (DWT) was scrapped. Nearly 55 million DWT of the global tonnage will be sold this year at a value of about $5 million. This will yield approximately 15 million tons of steel. Countries such as Bangladesh meet half their steel demand from the scrap industry. We expect that the demolition business will peak this year and continue to be good until 2015,” said Daniel Chopra, MD, Doehle Danautic India (DDI), the largest managers of ship breakers in India. The company handled 131 of the 435 vessels that were scrapped in India in FY12.
Rating agency Crisil estimates that of the 180 million gross tonnage of global shipping capacities that are more than 20 years old, around 55 million will be scrapped in two years. In the last three years, the revenues of 52 Crisil-rated ship breakers (constituting 46% of the ship breaking industry in India) increased at a compounded annual growth rate of 46%, helping these players nearly double their net worth.
According to an industry estimate, over 100 ship breaking companies are active in Alang and the turnover of the industry is about $2 billion (Rs 11,000 crore) per year with 50,000 workers directly employed.
“Efficiencies of scale and strong growth opportunities will strengthen the business risk profiles of India’s ship breakers. However, the sector will remain vulnerable to key risks such as environmental concerns, economic cycles, sharp movements in scrap steel prices, and fluctuations in forex rates,” Manish Gupta, head, Crisil Ratings, said.
According to the Ship Recycling Industries Association, the Alang yard produced 3,68,70,973 tonnes of steel by dismantling 5,508 ships between 1983 and 2011. In 2011-2012, Alang produced 38,56,071 tonnes of steel , or about 2% of the annual steel demand.