Ship-breakers at Alang are staring at a huge financial crisis, with activities having come to a grinding halt in the face of the second devastating wave of Covid.
Alang, the world’s largest ship-breaking yard, has come to a standstill. There is almost nothing in ship-breaking that can be done without the help of oxygen and with the diversion of the entire volume of liquid oxygen which was coming to Alang towards battling Covid, this graveyard of ships does look like a ghost-town at present. It is estimated that 70-100 tonnes of oxygen are required daily for ship-breaking at Alang.
“The volume of around 5,000 tonnes of daily ship-breaking coming out of the Alang Shipyard has come to a standstill because of the diversion of liquid oxygen towards fighting Covid,” Ritesh Agarwal, Partner, JRD Industries, a ship-breaking concern at Alang, informed SteelMint.
Ship-breaking involves breaking down and stripping of large ships and transporters for ferrous scrap. Liquefied oxygen is required as fuel to cut through the iron and steel.
“Only players who had in store some oxygen levels are trying to eke that out for their pooling work. But for all practical purposes, activity has come to a grinding halt,” Agarwal added.
Alang annually sees volume of around 2 million tonnes of ship-breaking happening within its premises. At present, at a monthly level, around 1.5-2 lakh tonnes of ship-breaking happens, which translates into around 5,000 tonnes per day.
So scrap sourced from ship-breaking will be terribly hit, but then lives will be saved and that matters most at present, Agarwal agreed.
The share of ship-breaking in scrap and re-rollable steel is around 1.5 lakh tonnes per month, as per sources.
Monetary Impact
Ship-breakers at Alang buy vessels on letter of credit (LC) and payments due to the banks are on a monthly basis. With activity having come to a standstill, sales of the material are nil. But, the ship-breakers need to honour the payments cycle.
The financial burden on ship-breaking is very huge in any case. So the ship-breakers are not in a position to honour the payments due. There will be defaults in payments, without collections, unless these LCs get extended, it is learnt.
“There is a huge financial crisis staring at the ship-breakers in Alang because of the non-selling of material and the payments which will be due will have to be made either by extension of the LC or the players will have to meet these from their internal accruals,” Agarwal said.
The average purchase price is USD 450 for a vessel. At an exchange of INR 74 to the US dollar, and with a monthly volume of around 1.5 lakh tonnes of ship-breaking, roughly USD 500 million worth of material purchase is made every month. But, with sales at a standstill, that much of payment is not being realised for a month now.
Volumes Down
The volume of ship-breaking that is taking place at Alang has lessened over the years from around 3 million tonnes to 1.5-1-8 million tonnes. This is because ship-breaking is not very viable in India any more, said sources. India is not very viable against Bangladesh and Pakistan which are scrap buying countries. India makes it own steel through the blast furnace route too unlike these two nations and so not that scrap-dependent either.
Only vessels that are Hong Kong Convention compliant are coming to Indian shores for breaking but their numbers have lessened, without having anything to do with Covid.
“Few shipping companies comply with this convention and those which do comply send their vessels to India. But the quantum of such vessels is low because India is not able to compete with Bangladesh and Pakistan. But whatever it may be, 150,000 tonnes of business has come to a standstill,” reiterated a source.
~ By Madhumita Mookerji
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