China's ship-breaking industry appears likely to repeat last year's financial losses in 2014 amid government plans to cap steel output, limited ferrous scrap demand, high purchase prices for obsolete vessels and a steady decline in domestic scrap prices, the China National Ship-recycling Association, or CANSI, told Platts Tuesday.
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With the ship-breaking sector dependent on the downstream scrap market, the ongoing fall in China's domestic scrap prices will continue to spell trouble, industry experts said.
CANSI member companies were holding a high inventory of around 500,000 mt of unsold ferrous scrap at end 2013, an association official said. This suggested breakers were struggling and would likely face another difficult year unless scrap buying picked up, he added.
Domestic prices of heavy scrap over 6 mm have dropped sharply in recent months, to be assessed last Friday at Yuan 2,320/mt with VAT delivered to Zhangjiagang city in Jiangsu province, down from Yuan 2,500/mt at the end December. Ship-breaking scrap with thickness over 6 mm is typically Yuan 100-200/mt higher than standard heavy scrap of the same dimensions.
Stricter environmental standards have also raised costs for domestic ship breakers, threatening China's competitiveness against other major ship breakers such as India and Bangladesh, they added.
The issue was raised at the National Committee of the Chinese People's Political Consultative Conference in early March, where Hu Keyi, a committee member and deputy general manager of Jiangnan Shipyard, called for ship breakers to benefit from ship-breaking subsidies as well as ship owners.
The Ministry of Transport, Ministry of Finance, National Development and Reform commission and the Ministry of Industry and Information Technology jointly announced subsidies of Yuan 1,500/gross ton for old transport ships and single-hulled tankers that were broken up, which are paid to the previous owner of the ship.
Ship-breaking volumes should be boosted in 2014 by a sluggish global shipping market and the introduction of stricter international maritime rules, a ship breaker source in Zhejiang province said.
Around 45 million deadweight tons of obsolete vessels will be broken down globally in 2014, according to a forecast by China Securities.