50,000 lose jobs as sharp fall in shipbreaking deals steel, oxygen a fatal blow

The already ailing shipbreaking sector in Chattogram was not ready for the twin shocks of the Covid-19 pandemic and the Ukraine war which made the import of raw materials scarce and costly, besides fueling the dollar crisis and gas-electricity price hike in the country.

The aftermath has been fatal with the closure of one after another of shipbreaking yards and massive unemployment.

The steel and oxygen factories established in the port city centering on the shipbreaking sector are also facing catastrophic consequences.

According to sources, around 80% of shipbreaking yards, steel and oxygen factories have been closed in the last three years, causing unemployment of around 50,000 people. The livelihood of another 50,000 people of associated businesses is also uncertain.

Infograph: TBS

The Bangladesh Ship Breakers Association (BSBA) data shows that from 2012 to 2019, 80 of the 160 shipyards in Sitakunda were closed. Forty more shipbreaking yards stopped production during the post-Covid-19 period due to a price hike of raw materials in the international market.

Currently, only around 20 shipbreaking yards are active in Sitakunda as the dollar crisis triggered by the Russia-Ukraine war forced another 40 shipbreaking yards to go out of business.

Sources said the shipbreaking sector had its peak time from 2000 to 2010 as new entrepreneurs started investing in the sector. However, it started to decline after 2012 due to the price volatility of scraps in international and domestic markets, political instability in the country and a slump in the construction sector.

The sector got some momentum, though, from 2017 to 2022 but only for the big ventures. The small and medium companies failed to weather the storm.

Nazim Uddoula, managing director of Lalbagh Shipbreaking, said, "No bank is providing LC facilities to small and medium traders due to the dollar crisis. As a result, most of the yard owners have not been able to import scrap ships since last June."

Shipbreaking yard owners said although the prices of scrap ships declined slightly in the international market at the end of 2022, they failed to tap the opportunity owing to the dollar crisis in the country.

Abu Taher, president of the Bangladesh Ship Breakers Association, told The Business Standard, "Currently, only 20% of the demand for the raw materials of the steel industry is being imported. If the situation persists, there will be an acute shortage of raw materials after a few months."

Sector insiders said melting scrap is currently selling at Tk65,000 per tonne, plate at Tk73,000 per tonne and billet at Tk78,000 per tonne in the domestic market. A year ago, melting scrap was sold at Tk55,000 per tonne, plate at Tk58,000 per tonne and billet at Tk63,000 per tonne.

In the international market, the scrap is currently selling at $470-$490 per tonne, which was $430 per tonne in November and $591 per tonne in June last year.

Trembling steel sector

Entrepreneurs in the steel sector say the production cost of rods has jumped in the country, fueled by the shortage of raw materials, the dollar crisis and the hike in electricity and gas prices.

According to industry sources, in the last two years, the production cost of rods has increased by at least 30% and around 86% of factories have stopped production.

Sarwar Alam, director of HM Steel, said, "Many factories have been forced to stop production. Some are continuing to pay workers to keep production at a small scale, curtailing production by 25%-50%."

M Manjur Alam, president of the Chattogram Steel Re-Rolling Mills Owners Association of Bangladesh, said, "Some 43 of 50 steel factories have stopped production. As a result, about 30,000 workers have become unemployed."

The big steel producers in the country are also incurring losses due to the crisis along with small and medium factories.

Tapan Sen Gupta, deputy managing director of BSRM, the country's top rod manufacturing company, said the company has been counting losses due to the hike in production cost of rods.

"We are conceding a loss of around Tk10,000 crore per tonne. But if we close the factory due to losses then the loss would increase as there is a fixed cost for the factory affairs, including the salary of workers. Moreover, thousands of workers will be unemployed if we close down the factory.

Nazmul Hossain, managing director of Universal Steel, which has been closed down due to the crisis, said, "We incurred a loss of around Tk5 crore in two factories in March-July 2022. After that, we closed down the factories."

"Despite the closure, we are still spending Tk28 lakh per month for the salary of the permanent staff, rent and gas and electricity bills. As the factories are closed, we are unable to pay the installments of our bank loans. In this case, more than Tk20 lakhs of bank interest are being added every month."

According to the Chattogram Steel Re-Rolling Mills Owners Association of Bangladesh, rod production in the port city has declined to 10 lakh to 15 lakh tonnes per day in the last two years from 30 lakh to 32 lakh tonnes per day.

Oxygen factories gasp

Meanwhile, the instability in the shipbreaking sector has affected the oxygen factories in Chattogram as most of the oxygen produced by them is used in dismantling scrapped vessels.
Sources said eight among 15 oxygen factories in Chattogram have been closed in the last two years.

KR Oxygen Limited in Sitakunda generally produces around 2,700 cylinders of oxygen per day. But their production has declined to only five to seven cylinders per day. As a result, they are counting a loss of around Tk35 lakh to Tk40 lakh per day.

Sikandar Hossain Tinku, chairman of KR Group, said, "Out of 150 there are only 35-40 workers left in the factory. We have decided to close down the factory next month."