Chinese demand for steel has pushed up the prices of ships going to the scrapyard by over 40 per cent worldwide.
In the past two weeks, old vessels of all types fetched a whopping $315 per light displacement tonne (LDT) in China, which is nearly 45 per cent above the price quoted six months ago.
Similarly, a ship sold for scrap last week at India's Alang shipbreaking yard, the world's largest, fetched $276 per LDT, up by 40 per cent over the January 2003 price.
Mayank Desai, director, Soham Overseas, a ship-brokerage firm based in Alang, western India, said the jump in Chinese demand has also affected the supply of old ships to Alang.
Last year, Alang received half the number of ships it received in previous years.
Most of these ships sailed to China on their final voyage and were scrapped in Chinese yards as that is where the demand for steel lies.
The steel recovered from the demolished ships goes to the steel mills for re-rolling, following which it is sent for conversion into steel bars.
Owners of old ships find it more lucrative to sell in China given the tremendous demand for steel.
This is quite evident from the fact that old vessels sold in China fetch around $40 more per LDT compared with those headed for Alang.
Higher rates of dry bulk freight have also played an important role in pushing up old ship prices, said Desai.
Owners of vessels 20 years old or more have the best of both worlds.
If they sell their ageing ships, they get a good price because of the higher prices of steel. At the same time, higher freight rates offer them an opportunity to make more money on their nearly outdated vessels.
Among the aged vessels, the very large crude carriers (VLCCs) are favoured in the shipbreaking business because they yield more steel.
Last year, it was the China factor which pushed crude carrier charter rates higher and made it a scarce commodity for the ship-breaking industry.
Relatively higher demand for crude from China lured owners of crude carriers 15 to 20 years old to make money on their vessels before they were scrapped.
This resulted in a dearth of crude carriers in ship-breaking, said a ship broker in Dubai.
A number of shipbreaking companies operating in India, Pakistan, Bangladesh and China are excited about the jump in steel prices, but paradoxically, there are not enough ships available in the market to make the final call on these yards, said Desai.
Gulf News
