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Bangladesh Ship-Breaking Industry Navigates Troubled Waters in 2023

Bangladesh Ship-Breaking Industry Navigates Troubled Waters in 2023

Bangladesh Ship-Breaking Industry Navigates Troubled Waters in 2023

The ship-breaking industry in Bangladesh, renowned as the global leader, faced a tumultuous year in 2023. It witnessed the lowest import of scrap ships in a decade, attributing this decline to the ongoing dollar crisis and a slowdown in both the national and international economies.

The Bangladesh Ship Breakers and Recyclers Association reported an alarming figure – only 1,022,000 tonnes of scrap ships were imported in the last year, marking the lowest amount in the past ten years. This starkly contrasts with the figures of 2,728,597 tonnes in 2021 and 1,145,324 tonnes in 2022, despite the economic impacts of the Covid-19 pandemic.

The initial eight months of the year were particularly challenging for the ship-breaking industry, witnessing a minimal import of ships due to the dollar crisis. From January to August, only 144 scrap ships, weighing 880,558 tonnes, were imported. However, the last quarter experienced historic lows with merely 29 ships, totaling 141,570 tonnes, imported. Importers faced difficulties with opening letters of credit (LCs), exacerbating the situation.

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Entrepreneurs attribute the decline to the dollar crisis, which hindered the opening of new LCs for importing scrap ships from abroad. This prolonged crisis has had a cascading effect, leading to a decline in the production of iron and steel, industries heavily reliant on ship-breaking.

In July 2023, the central bank’s notification instructed the Bangladesh Bank to inform before opening substantial LCs for imports, adding another layer of stagnation to an industry with a market value exceeding Tk10,000 crore.

Ship-breakers emphasize the growing disparity between international and local markets, making it increasingly challenging for entrepreneurs to turn a profit. While the price of scrap ships in the international market rises, the price of scrap steel decreases locally, as numerous rerolling mills and steel mills shut down due to raw material shortages.

Taslim Uddin, managing director of KR Ship Recycling Yard, highlighted the challenges, stating, “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.”

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Mohammad Nur Uddin Rubel, managing director of NR Ship Recycling Yard, expressed concern about the shrinking size of imported ships, attributing this decline to two key factors – the rising dollar price and heightened margin rates imposed by banks.

Ali Akber, a steel plate trader in Sitakunda, pointed out the dwindling trade in scrap and steel plates, which has reduced to a quarter of the regular market. He noted that over 60% of rerolling and steel mills have shut down due to raw material shortages, leaving their capital stuck with mill owners and increasing liabilities through mounting interest on bank loans.

Examining historical data from the Bangladesh Ship Breakers and Recyclers Association, in 2014, a total of 227 ships weighing 2,605,099 tonnes were imported. Although there was a slight decrease to 2,488,844 tonnes the following year, figures 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, respectively.

Entrepreneurs highlight the closure of more than 50 shipyards in recent years, with an additional 20 ceasing operations in the last year and a half. The remaining yards face uncertainties, and without government cooperation in resolving the crisis, survival seems increasingly difficult for the sector.

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

Despite the challenges, the industry is undergoing a significant transformation, with three yards receiving “green yard” certification involving substantial investments. Additionally, ten other yards are undergoing transformation. However, meeting the Hong Kong International Convention’s goal of converting all ship recycling yards into green yards by 2025 poses a considerable challenge for Bangladesh.

If the economic slowdown and dollar crisis persist, ship-breakers fear 2024 could be disastrous for investors in this sector. Abu Taher, president of the Bangladesh Ship Breakers and Recyclers Association, expressed concerns about paying workers and the overall business outlook, stating, “We are also struggling to pay our workers. Business is not going as expected. If this continues, we will have to stop our business.” The ship-breaking industry in Bangladesh faces an uncertain future, requiring urgent attention and intervention to ensure its survival and sustainable growth.

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