Covid-hit Alang ship-recycling hub eyes old vehicle scrappage opportunity

The Indian ship recycling industry is also facing competition from Bangladesh and Pakistan which are offering more competitive prices for vessels as well as enjoying better domestic steel prices

Even as a team of officials explores the options of scrapping old vehicles at the country's leading ship breaking and recycling yard at Alang as directed by Prime Minister Narendra Modi, the local industry is bullish about the opportunity. 

And why not? Having witnessed a sharp fall in the number of vessels docking at the facility during the two-month long Covid-induced lockdown, the Alang-based ship recycling industry near Bhavnagar in Gujarat is looking for a fresh lease of life. 

Before the lockdown, the industry used to see an average of 15-20 vessels arriving for breaking and recycling every month. This fell to just 9 in April and May when there was a lockdown in the country. Once the lockdown was over and ships were allowed to arrive, the Alang-based industry saw 50 vessels in the last three months, which were already purchased by recycling plot owners, but were waiting for approvals to arrive.

"Since all the pending vessels have arrived for breaking and recycling, the arrivals have slowed down again. As against a healthy monthly average of 15-20 vessels in the pre-lockdown era, hardly 5-7 vessels a month are arriving now," said Vishnu Gupta, president of the Ship Recycling Industries Association of India.

There are roughly 150 recycling plots provided on long term lease basis to ship breakers and recyclers by the Gujarat Maritime Board (GMB). Of these, nearly about 90 were operational before the Covid-19 pandemic. This has now come down to 75. 

Apart from the slowing business, the Indian ship recycling industry is also facing tough competition from neighbouring countries like Bangladesh and Pakistan which are offering more competitive prices for vessels and are enjoying better domestic steel prices. 

The way the industry works is that a vessel is either directly purchased from ship owners by plot owners or by middle-men called 'cash buyers' who then outsource the recycling to plots. On arrival, vessels undergo necessary inspection and approval process by the Customs and other relevant departments after which they are dismantled with the steel being a major output from the breaking and recycling process. The steel is then traded in the domestic market.

It is here that Alang faces stiff competition from Pakistan and Bangladesh, which offer not only better prices for ships, but also have higher steel prices which enables the local ship recycling industry to offer competitive prices for vessels.

"While Bangladesh and Pakistan are able to offer $390 per tonne for a vessel, in India the prices fell to $300 after the lockdown. While they have now climbed to $360 per tonne, it is still lower than the other two countries," said Gupta. The competing countries are able to offer such a high price because of the local steel price ruling at Rs 38,000-40,000 per tonne whereas ship recyclers in India are able to garner only Rs 26,000 per tonne in the domestic market by selling the steel from broken vessels.

Due to the loss of business in roughly three months this year, the industry is expecting to take a hit of Rs 3,000 crore in its annual turnover which stood at Rs 10,000 crore in FY20. According to Jivraj Patel, one of the shipbreakers, not only the lockdown, but monsoon has also led to a fall in demand and arrival of vessels.

Adding to the woes is the shortage of workers. Being a labour intensive industry, Alang ship recycling hub employs around 20,000 workers in normal circumstances, about 70-80 per cent of them being migrant workers from states like UP, Bihar, Jharkhand and Odisha. "With almost all the migrant workers having gone back to their home states, we have only 7,000-8,000 workers working at Alang which has also impacted capacity utilisation in terms of vessel breaking and recycling," Gupta added.

In such a scenario, the industry is more than willing to add other avenues to its business, including the vehicle scrapping opportunity.. "We are awaiting clarity on the same. The officials are yet to visit. It needs to be seen whether the government itself will take up the old vehicle scrapping or outsource it to the private players. It is only in case of the latter that the plot owners here can benefit," said Gupta.