Tradewinds – Will green recycling change the demolition landscape?

(Written by Adam Corbett)

29 August 2014 - The Indian subcontinent has so far dominated the shipbreaking business but new green regulations and pressure groups are forcing owners to look for alternatives

When Hapag-Lloyd said it had decided no longer to sell to demolition yards that are not compliant with recently agreed international standards, it was no surprise the next vessel it sold for recycling ended up in China — as TradeWinds reported last week.

The Hamburg-based company had come under pressure from environmental lobby group NGO Shipbreaking Platform to make a commitment to green and sustainable recycling. China is regarded as a safe bet, where there is no beaching and most breaking yards meet environmental and safety standards laid out in the Hong Kong International Convention for the Safe and Environmentally Sound Recycling of Ships (Hong Kong Convention).

China has had a growing presence in the shipbreaking market over the past decade, according to a study undertaken by Clarksons in its quarterly World Shipyard Monitor.

Its figures show the country increased its share of the market from just 8% between 2005 and 2008 to 21% between 2009 and 2013. This year to date, it has accounted for 24% of the 21.6 million dwt of ships sold for demolition.

India, however, is the most common destination for end-of-life vessels, accounting for just over one-third of all tonnage demolished. Bangladesh has fallen from being a world leader between 2005 and 2008, with a 60% share of the market, to just 18% so far this year.

Pakistan has taken Bangladesh’s place to some extent, increasing its share from 5% between 2005 and 2008 to 20% in the year to date.

But the Clarksons study shows China’s rapid rise up the shipbreaking ranks does not really owe much to increased environmental concerns among the world’s owners. Although that is a factor, the broker says virtually all the workload of China’s breaking yards comes from domestic owners encouraged by state subsidies.

“The government’s scrap subsidy has encouraged Chinese owners to recycle older ships domestically and over 90% of the 4.4 million dwt reported scrapped in China in the year to date was Chinese owned,” Clarksons said.

There are other reasons why it has not broken into the international market more.

In general, Chinese yards have much higher labour and operating costs compared to the Indian subcontinent. Brokers suggest they are only really able to offer competitive prices for tonnage in the international markets on the back of strong domestic demand and prices for scrap steel.

One major cash buyer argues that India should not be crossed off the list when owners with strong environmental and safety concerns consider where to scrap their ships.

GMS Leadership suggests China and Turkey are not the only alternatives, and that India’s growing environmental safety and awareness need to be encouraged by the shipowning community.

Responding to Hapag-Lloyd’s commitment to environmentally friendly demolition, GMS president and chief executive Dr Anil Sharma welcomed the move but called for recognition that India is upping its game.

“At this early stage, shipowners must target their custom towards recycling yards in all areas of the world, including India, China and Turkey,” Sharma said.

“Whilst there are yards in, for example, China that now comply with many regulations, we feel it important for the industry to recognise there are many more recycling yards around the world, in particular India, that are making moves to implement meaningful and incremental improvements in processes and, thus, driving a groundswell of support for the [Hong Kong] Convention.”

GMS non-executive director Nikos Mikelis added: “We work with recycling yards in India, for example, that are currently implementing improvements to safety, to environmental protection and to social welfare.

“The owners of these yards need — and deserve — to be supported by the custom of quality shipowners so that their businesses can prosper and so that they can become examples to be imitated by the rest of the recycling industry in their country.”

So it might be too early to say the environmental market is all China’s. The figures suggest the country’s more regulated facilities still cannot offer a competitive alternative in the international markets, while India may yet still hold onto its market share if owners, pressure groups and governments can be convinced that some of its breakers are reaching internationally recognised standards.