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US Dollars disturbing ship recycling countries

The ship recycling market has remained in a difficult state with very few demolition candidates. In its latest weekly report, shipbroker Clarkson Platou Hellas said that “there was more upheaval to report this week, this time coming from Bangladesh, where despite price levels showing signs of improving, the Bangladeshi Government introduced new restrictions to limit the outgoing volume of U.S. Dollars for ‘essential’ purchases only. This will now pose serious questions concerning these improved levels for any available tonnage in the foreseeable future. 

In a separate note this week, GMS , the world’s leading cash buyer of ships, said that “fears and concerns across the sub-continent recycling markets continue to grow as local currencies across all major ship-recycling destinations continue to worryingly depreciate by the day and some even tougher restrictions reportedly set in place on the opening of fresh Letters of Credit (L/Cs) in Bangladesh this week, as the foreign currency crisis in the country deepens further. In fact, the currencies have been such a source of frustration for the ship recycling community that the U.S. Dollar transactions are getting uncontrollably out of hand. The Pakistani Rupee has depreciated by a whopping 44% since the start of the year and shows few signs of stabilizing just yet. Bangladesh too has not escaped the forex collapse and remains in a perilous state. In fact, this week, the Bangladeshi government has applied to the IMF for a USD 4.5 Billion bailout, with the economic crisis continuing to eviscerate ‘non-essential’ large dollar value international trade.

As such, the government announced that any Letter of Credit exceeding USD 5.0 million must be approved by the Central State Bank for opening. In addition, reports this week suggest that the Government of Bangladesh has sought a USD 4.5 billion loan from the International Monetary Fund as it seeks assistance to cope with the mounting pressure on their economy. It is understood the Bangladeshi Taka has devalued by about 20 pct against the U.S. Dollar over the last few months weakening the country’s finances. We are already hearing of cash buyers facing difficulties reselling any larger LDT tonnage that they have in hand due to these restraints and it is expected that this will continue for some time, thus the question will be, whether Bangladesh will be aggressive to purchase any large LDT vessel that comes into the market. Concerning times indeed for the local Chattogram market! Elsewhere, India is seemingly the more stable and competitive market, but again the dwindling of tonnage being circulated is a cause for concern for the domestic industry. Across their border, the recyclers in Pakistan look set to take a position on the side-lines as their price levels remain far less competitive than their counterparts in India and even Bangladesh”, the shipbroker concluded.

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