Mumbai: Addition of new ships may be weakening the global shipping industry’s outlook and depressing freight rates, but it means increased business for Indian shipbreakers in the coming years, rating company Crisil Ltd said in a report released on Tuesday.
Indian shipbreakers are expected to acquire a larger market share, supported by favourable demand for steel scrap, and limited competition from other markets, including China and Bangladesh, the report predicted.
Trends for India’s shipbreaking industry, centred on one of the world’s largest ship cycling yards at Alang in Gujarat, are counter-cyclical to those for the global shipping industry.
Bouts of weak global freight rates make it expensive for ship owners to operate old ships, generating a surge in shipbreaking activity.
Global freight rates have been depressed since 2009, and high prices for steel scrap have resulted in a spurt in shipbreaking, the report said. In 2009 and 2010, the volumes in global shipbreaking aggregated to around 44 million gross tonnage (GT)—twice the volume in the four preceding years, it said.
Expansion of global shipping capacity with the arrival of new vessels, and declining freight rates will continue to propel interest in shipbreaking.
“New ships ordered in 2006-08 will be ready for delivery by 2012, and result in expansion in global capacities by more than 25%. However, global trade is expected to slow down, driving reduction in freight rates in the next two years. These factors will together improve the economics for increased scrapping of older ships,” said Gurpreet Chhatwal, director at at Crisil Ratings.
Crisil estimates that of the 180 million GT of global shipping capacity that are more than 20 years old, around 55 million GT will be available for breaking in the next 24 months.
The global market share of India’s shipbreakers is expected to grow to 40-45% in the next two years from 35% in 2010.
Uncertainty over legal restrictions on shipbreaking in Bangladesh and China’s higher costs are likely to help Indian shipbreakers. In the last three years, the revenue of 52 Crisil-rated shipbreakers (constituting 46% of the shipbreaking industry in India) increased at a compound annual growth rate of 46%, helping then nearly double their net worth.