Biden’s Sanction Surge: COSCO and Russian Entities Targeted
This week saw U.S. President Biden intensifying sanctions against global shipping giants, targeting China’s national shipping arm COSCO and Russian entities. The sanctions were driven by allegations of COSCO's involvement with the Chinese military, specifically blacklisting its energy and tanker division. These measures have had a significant ripple effect, particularly in the global shipping and energy markets. Over 180 vessels were sanctioned, including several Russian assets, in a move that many experts see as part of a broader, final push by Biden’s administration to target Russia ahead of his presidential transition.
Energy Markets React: Oil Futures Surge Amid Sanctions
While some experts believe that these sanctions won’t have as severe an impact as the 2019 restrictions on COSCO, the immediate effects on energy markets have been noticeable. The cost of oil futures surged towards the end of the week, with barrel prices reaching US$ 76.57, a level not seen since October of the previous year. This uptick is attributed to the uncertainty surrounding the sanctioning of COSCO and Russian vessels, sending shockwaves through global energy supply chains.
Shipping Rates Surge: Baltic Index Hits New High
Furthermore, the Baltic Dry Index, a key measure of dry bulk shipping rates, rose 8.2% by Friday, marking its second consecutive week of increases. Dry bulk commodities, which include key materials like coal, grain, and iron ore, are increasingly becoming costlier due to these disruptions. Despite this, ship recycling markets in India and Bangladesh remain notably busy, particularly in India, where waterfronts have reported high traffic of vessels for recycling.
Currency Pressures: The Dominance of the US Dollar
The continuing dominance of the U.S. Dollar, however, is putting further pressure on recycling nations, especially those reliant on weaker local currencies, as the value of the Dollar increases. This situation has compounded difficulties for ship recyclers, with steel prices dropping globally, particularly in China, and contributing to lower domestic levels in key markets like India. This weakening in steel prices has created additional volatility in the ship recycling sector, even as India’s ongoing steel tariffs may provide a temporary cushion for Alang’s yard performance. Meanwhile, Pakistan’s market is on the verge of further price declines, creating even more uncertainty for ship recyclers.
Market Shifts: Larger Vessels Now Available for Recycling
The global ship recycling market has seen mixed performances this week, with an uptick in larger vessels being offered for sale. After a quieter 2024, which saw historically low recycling volumes, high-profile ships, including LNG carriers and Panamax bulkers, are now coming onto the market. This shift could present new opportunities or complications for recyclers who are already grappling with a lack of workable candidates and supply chain disruptions.
Upcoming Challenges: The Hong Kong Convention and Regulatory Pressures
As the Hong Kong Convention comes into effect mid-year, ship recycling yards are still struggling to meet the updated regulations, which could lead to further volatility. The uncertainties surrounding the market could make 2025 a year defined by unpredictability, especially if sanctioned assets remain in limbo without clear recycling destinations. This continued uncertainty may add to the financial strain on yards that have already invested heavily in upgrades to meet the new standards. Consequently, the global ship recycling market could face another year of turbulence, with financial pressures on yards and price fluctuations remaining the norm.
Minimal Movement in Turkey: Lira Fluctuations and Continued Operations
Additionally, the Turkish market remains largely unchanged, with minimal movement outside of the Turkish Lira's ongoing fluctuations. Despite the challenges, ship recycling operations continue in many regions, albeit under shifting and unpredictable market conditions.
