The Chinese government has implemented a new subsidy programme that rewards shipowners who recycle older Chinese-flagged ships in China and replace them with newbuildings.
South Asian ship recyclers are not happy.
The new scrap-and-build policy has been designed to accelerate the modernisation of China’s commercial shipping fleet.
In contrast to a previous scheme that ended some years back, the new policy is heavily geared towards incentivising owners to opt for eco-fuel ships.
Chinese shipowners will receive a subsidy of CNY 700 ($98) per gt of the vessel being scrapped that can be used against the cost of a newbuilding ordered at a Chinese shipyard.
Additionally, if the shipowner places an order in China for an eco-fuel design ship, they can secure another subsidy of about CNY 600 per gt of the vessel being recycled.
The policy is only applicable to ships that are older than 20 years.
Also benefiting from this scheme are Chinese ship recyclers, who have been prevented from purchasing non-Chinese-flagged ships since 2018 due to government restrictions on the importation of waste, and who can only offer prices substantially lower than what is being offered from recyclers on the Indian subcontinent.
Market sources say Chinese scrap prices are currently hovering around the $250 per ldt level as opposed to the Indian subcontinent, where average prices across India, Bangladesh and Pakistan are at around $500 per ldt.
This price differential has led to an overwhelming majority of Chinese-owned ships, including smaller coastal vessels, being sold for recycling in Bangladesh.
Brokers who specialise in recycling sales said that with the new subsidy scheme, Chinese shipowners are now achieving a better deal by recycling the ships within China and availing themselves of subsidies.
On the other hand, subcontinental ship recyclers, especially those in Bangladesh, who, due to letter of credit restrictions, have relied on the sale of small to medium-size Chinese-owned ships that can be acquired cheaply for cash, are seeing their supply dry up.
“The faint hope that Chinese shipowners might send their end-of-life vessels from China to the subcontinent has faded following the Chinese government’s subsidy policy. Ships initially destined for the subcontinent are being withdrawn from the market as owners opt to scrap them locally,” said Rohit Goyanka, director of Singapore-based Star Asia Shipbroking.
“Currently, the only ships keeping the Bangladeshi markets busy are smaller ones, younger than 20 years of age, that don’t fall in the 2024 policy and are not eligible for the subsidies,” he added.
“The irony is that these 2004 and up Chinese-built ships are being offered at substantially lower prices to the tune of $50 to $60 per ldt due to substandard steel quality and weight loss issues.”
Goyanka said that sentiment among ship recyclers has soured across South Asia as a lack of available ships has combined with the inability of recyclers to increase their price offerings to entice shipowners to recycle.
“Most are taking a cautious stance despite a significant shortage of ships available for sale — a rare situation where market prices decline even amidst a diminished supply,” he said.
The past week saw no fresh recycling sales reported by brokers and cash buyers.