Ship Recycling Trends, Developments & Outlook. October 21 st, 2010 Ship Recycling: Trends, Developments & Outlook 1

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Lorraine Burke
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1 Ship Recycling Trends, Developments & Outlook October 21 st, 2010 Ship Recycling: Trends, Developments & Outlook 1

Ship-Recycling: From 2004 late 2008 Slowest periods in

demo prices (from USD 150/LT to USD 800/LT Profit

(ships bought at USD 2 mill were being sold for USD 4

(ships destined for scrap went for trading) Cargoes

2 Ship-Recycling: From 2004 late 2008 Slowest periods in history of ship recycling More than 5-fold increase in demo prices (from USD 150/LT to USD 800/LT Profit taking: Demo ship values exceeded old trading values (ships bought at USD 2 mill were being sold for USD 4 million) Dry bulk vessels disappeared from the market (ships destined for scrap went for trading) Cargoes available for scrap vessels Ship recycling capacity shrank 2

3 Ship-Recycling: What happened after 4 th qtr of 2008 Collapse of ship and scrap steel prices by about 75% Credit Crunch: Local banks withdrew credit lines causing abrupt halt in local Letters of Credit (LCs) Western banks unable to negotiate LCs Relentless supply of ships mainly dry bulk {capers, panamax, handymax (125 in 6months)} More renegotiations than ever before. More lawsuits, auctions, arrests 3

Ship-Recycling Today: Volumes Pre-3 rd quarter 2008: about 300

USD 2 billion annual turnover Location: Indian Subcontinent

(down from about 90%) China has come back strong Turkey:

4 Ship-Recycling Today: Volumes Pre-3 rd quarter 2008: about 300 ships/year Post 2010: expected to be record years 900-1,000 ships? USD 2 billion annual turnover Location: Indian Subcontinent (Bangladesh, India, Pakistan) will do about 75% of the business (down from about 90%) China has come back strong Turkey: Beneficiary of high Suez transit costs, piracy and low prices in the Indian subcontinent 4

Impact of strong supply on ship-recycling capacity Do we have

5 Impact of strong supply on ship-recycling capacity Do we have enough ship recycling capacity in the world to meet the onslaught of high volumes? India: 180; Bangladesh: 40; Pakistan: 30; China and Turkey: Is capacity elastic or unelastic? Can we recycle more ships per yard? Can we build more yards in current ship recycling countries? What if the world runs out of ship recycling capacity? 5

6 Factors affecting PRICES Supply vs Demand Vessel specific Type, where built, LDT Condition/Cargoes/Ownership Spares, Machinery, goodies Local Fundamentals Steel prices and demand Exchange rate Market expectations (supply, budget, etc) Overall capacity and competitive forces 6

Example: Disposing a Car 30-years old car

7 Example: Disposing a Car 30-years old car for disposal USA price: USD 300 India price: USD 3000 Where do you sell? Why? If India, How? To Whom? Regulations? Guarantees? Safety of monies? Questions, Questions and More Questions. Cash Buyers find the answers 7

8 Road Ahead Safe & Responsible Ship Recycling Worker Safety + Green Ship Recycling Adoption of IMO Convention and implications GMS + GL Will provide a strong foundation for sustainable shipping Aged ships will be assets and not liability 8

9 IMO Convention What is the CONVENTION? Most comprehensive & consequential Key items: Inventory of Hazardous Materials Ship Recycling Plan: Identification, Removal and Safe Disposal of Hazardous Materials Worker Safety at Yards 9

Programs World Bank, ILO, Basel, Owners Assoc Threats Participation (lack of)

10 IMO CONVENTION Opportunities and Threats Opportunities Convergence of interests IGOs, NGOs (not all), Owners, Buyers, Ship Recyclers, Class societies Funds & Programs World Bank, ILO, Basel, Owners Assoc Threats Participation (lack of) Government, industry players, Handy owners Misrepresentation & Accountability Beaching Method 10

11 Myth: Green India? Myth: Bare Hands Fact: PPE 11

12 Myth Vs. Fact Myth: Half-naked workers! Fact: Fully covered workers in PPC 12

13 Myth Vs. Fact Myth: Open Fires Fact: 13

14 Myth Vs. Fact Myth: Unlicensed and uncertified industry! Fact: ISO 9001, & OHSAS cert. 14

Ship-Recycling: India Poor Image Renegotiations Worker

More than 20 licensing bodies 55 ISO 14001/9001 and

Safety record lowest accident rate of any major

15 Ship-Recycling: India Poor Image Renegotiations Worker Rights and environmental concerns Heavily regulated More than 20 licensing bodies 55 ISO 14001/9001 and OHSAS certified yards (several with all 3) Safety record lowest accident rate of any major industry Economic Benefits Better than other labor intensive industries 15

IMO has acknowledged India s improved standards

16 Why India? Provides good combination of asset value + green ship recycling GMS & GL tie up. Best value for Responsible Owners. IMO has acknowledged India s improved standards Blue-chip owners have accepted India s Green credentials India s high prices are because of REUSE and better prices for recyclable items rather than cheap labor 16

17 REUSE - Better than Recycling Infrastructural growth Ship steel vs. Iron Ore Machinery & Parts Agricultural & Industrial Spare Parts Furniture, fixtures, Oils etc. Defined Re-use Market for every nut and bolt, thus industry is truly Recycling Industry. 17

18 Closing Thought A healthy, vibrant ship recycling industry, Is good for the environment For the shipping industry Outlet for safe disposal of old vessels Increase in Residual values Creates employment for about 300,000 people Essential for growth of local economies 18

19 Finally This is the time for all stakeholders to come together. Otherwise, an asset-based industry will turn in to a liability, which must be avoided to ensure sustainability of shipping industry. 19

(ships destined for scrap went for trading)

(ships destined for scrap went for trading) Ship Recycling Trends, Developments & Outlook July 23, 2009 Ship Recycling: Trends, Developments & Outlook 1 Ship-Recycling: From 2004 late 2008 Slowest periods in history of ship recycling More than 5-fold