Shanghai Salvage is edging closer to winning what will be the biggest wreck removal contract this year — to dismantle the grounded containership Kea Trader from the Durand Reef in New Caledonia.

Sources familiar with the progress said Shanghai Salvage entered into detailed negotiations with owner Lomar Shipping and its protection-and-indemnity club Skuld.

Lomar declined to discuss the status of the tender. However, the final selection of the salvage company will hinge on the approval of the wreck removal plan by New Caledonia authorities expected sometime next month.

Bidding for the business has been highly competitive with leading salvors keen to secure the high-value contract in what has been a poor year for wreck removals.

Insurers are also seeking to keep a tight lid on costs in what will be an expensive and challenging job in difficult open sea conditions.

New Caledonia is also expected to apply strict environmental demands on the job to protect the marine environment.

The claims reserve is already set at an eye-watering $170m for the Kea Trader loss.

The likes of Ardent, Smit and Resolve are likely the most experienced and technically qualified of the bidders. But Shanghai Salvage, which mainly works in Chinese-related salvage jobs, has been growing in stature in the wreck removal business.

It was selected as the successful bidder for the wreck removal of the ferry Sewol off the coast of South Korea, in another technically demanding job that had a high media profile.

The Chinese company was criticised by competitors at the time of bidding with allegations of discounting to win the business.

But it successfully completed the job on time and within the budget and it later emerged it had the most technically advanced plan for the wreck removal job among its competitors.

The job involved painstakingly raising the fragile wreck of the Sewol from the seabed in one piece and operating in a sea area known for strong currents.

Shanghai Salvage's work in raising the wreck was regarded as a significant engineering achievement.

Shanghai Salvage was also in the headlines recently, winning the Lloyd’s Open Form (LOF) for the emergency response to the 164,000-dwt tanker Sanchi (built 2008) 257 kilometres (160 miles) off the east coast of China.

The wreck of the Kea Trader fractured vertically into two in storm-force seas and the wreck continues to sit hard aground on the flat rock Durand Reef. The two sections of the vessel are moving slightly further apart. Tugs and specialist anti-pollution contractors are on site while work continues to remove the containers.

The 2,194-teu Kea Trader was virtually brand new when it ran aground in July this year, sailing from Papeete, in French Polynesia, to Noumea in New Caledonia, loaded with 756 containers.