Ship-breaking industry saw decade's lowest imports in 2023

The ship-breaking industry in Bangladesh, which holds the top global position, experienced a tumultuous year in 2023, importing the lowest amount of scrap ships in a decade due to the ongoing dollar crisis and a slowdown in both the national and international economy.

The Bangladesh Ship Breakers and Recyclers Association reports that only 1,022,000 tonnes of scrap ships were imported last year, representing the lowest figure in the past 10 years.

This contrasts with imports of 2,728,597 tonnes in 2021 and 1,145,324 tonnes in 2022, despite the economic impact of the Covid-19 pandemic.

In the first eight months of the year, ship imports reached a minimum due to the dollar crisis, with a total of 144 scrap ships weighing 880,558 tonnes imported from January to August. Conversely, the last quarter experienced the lowest-ever imports in history, with only 29 ships weighing 141,570 tonnes as importers faced trouble with opening letters of credit (LCs).

Entrepreneurs say due to the dollar crisis, no new LCs could be opened for importing scrap ships from abroad for an extended period. Consequently, the production of iron and steel, dependent on this industry, has declined.

In July 2023, the central bank issued a notification, instructing the Bangladesh Bank to inform it before opening substantial LCs for imports, causing further stagnation in the industry with a market value exceeding Tk10,000 crore, they say.

Ship-breakers pointed out that the disparity between international and local markets is making it harder for entrepreneurs to make a profit. They say while the price of scrap ships in the international market has been increasing, the price of scrap steel kept decreasing in the local market as many rerolling mills and steel mills have shut down due to raw material shortages.

Taslim Uddin, managing director of KR Ship Recycling Yard, said, "I opened the last LC two months ago. Currently, only 10-12 shipyards are operating. Approval from the Bangladesh Bank is required if the scrap ship import cost exceeds $3 million, for which we have to wait a long time. As a result, ship-breakers are also discouraged from importing large tonnage ships."

Mohammad Nur Uddin Rubel, managing director of NR Ship Recycling Yard, expressed concern over the shrinking size of imported ships, with tonnage decreasing from 30,000-40,000 to the current 10,000-15,000 range. He attributed this decline to two key factors – the rising dollar price and the heightened margin rates imposed by banks.

Ali Akber, a steel plate trader in Sitakunda, said trading in scrap and steel plates has dwindled to a quarter of the regular market.

"More than 60% of rerolling and steel mills have shut down due to raw material shortages. As a result, our capital is stuck with the mill owners, but the interest on bank loans keeps mounting every day, simultaneously increasing our liability," he added.

According to data from the Bangladesh Ship Breakers and Recyclers Association, in 2014 a total of 227 ships weighing 2,605,099 tonnes were imported. Although imports slightly decreased to 2,488,844 tonnes the following year, they peaked at 3,405,068 tonnes in 2016. Import figures for the subsequent four years, from 2017 to 2020, were 2,128,763 tonnes, 2,540,178 tonnes, 2,360,714 tonnes, and 2,039,666 tonnes, in that order.

Entrepreneurs noted that more than 50 shipyards have closed completely in recent years, with another 20 yards ceasing operations in the last year and a half. The remaining yards are also facing uncertainties, and if the government does not cooperate in resolving the crisis, industry participants believe it will be very difficult for the sector to survive.

Sartaj Imran, deputy director of Simni Group, described the current situation as disappointing, highlighting the industry's inability to compete in the international market due to the dollar shortage.

Furthermore, the industry is currently undergoing a significant transformation, with three yards receiving "green yard" certification involving substantial investment. Additionally, 10 other yards are undergoing transformation.

However, according to the Hong Kong International Convention for the safe and environmentally sound recycling of ships, Bangladesh faces a challenge in converting all ship recycling yards into green yards by 2025.

If the economic slowdown and dollar crisis persist, ship-breakers fear 2024 will be disastrous for investors in this sector.

Abu Taher, president of the Bangladesh Ship Breakers and Recyclers Association, told TBS, "We are also struggling to pay our workers. Business is not going as expected. If this continues, we will have to stop our business."