China’s Recycling Role

Global demolition volumes have remained high in recent years, as most major shipping markets have been relatively weak. 2012 saw a new record reached, with 58m dwt scrapped globally. Each of the major breaking countries bought a record volume last year, except for China. China’s share in global recycling has varied notably over the last decade, and could be set for another shift if recently announced policies have a significant effect.

A Piece of the Cake

Most tonnage scrapped is typically sent to the Indian Subcontinent (ISC). Yet the volume scrapped in China is not insignificant, as shown on the Graph of the Month. Since 2009, China’s share in global demolition has averaged around 18%. In total, 10.8m dwt was scrapped in China in 2012.

However, in 2005-08, global scrapping volumes and China’s market share were much lower. High earnings discouraged demolition, while the higher scrap prices offered by breakers in the ISC limited China’s share. Historically, the gap between scrap prices offered in China and the ISC has had a major effect on scrap sales, with China’s share reaching 41% in 2003 when Chinese breakers were able to offer the highest prices. The size of this price gap depends on local factors including the recycling method used, with breakers in the ISC relying on beaching methods while in China greener quayside processes are used.

Domestic Bliss?

Before 2008, nearly all tonnage scrapped in China was foreign owned. However, the 80% growth in the Chinese owned fleet since the end of 2008 (mostly accounted for by the acquisition of bulker tonnage) has led to Chinese owners scrapping more vessels. While Chinese owners have still largely been driven by price, selling only 39% of tonnage scrapped in 2009-12 to domestic breakers, they have still supported Chinese recycling activity. In 2012, Chinese owners sold over 4m dwt (3.5m dwt of which were bulkers) to Chinese breakers, accounting for 38% of total scrap sales in China.

Getting Political

In 1H 2013, demolition in China totalled 4.5m dwt, more than three quarters of which was bulker tonnage. While this represents a drop of 16% on an annualised basis, global scrapping volumes are still projected to remain firm at 47m dwt in the full year, supported by the weak dry bulk market and continued availability of old bulkcarrier tonnage.

Additionally, the Chinese government is planning to introduce a number of supporting measures for the domestic shipbuilding industry. These may include the granting of a 20% subsidy on domestically-placed contracts if owners scrap other vessels over 15 years old. While details of the potential policies are still unclear, it is possible that such measures could support Chinese owned demolition and as a result, total scrapping in China.

So, the gap between offered scrap prices in China and elsewhere is likely to remain the most significant driver of the distribution of global scrap sales. But Chinese policies could eventually have an effect, especially if more Chinese owners scrap domestically. Still, in the short-term, high recycling volumes are expected to keep China’s breakers very busy