Turbulent Start to 2025 in Ship Recycling
The year 2025 has ushered in a series of market fluctuations that are reshaping the future of the ship recycling industry. The ongoing volatility created by tariffs and counter-tariffs continues to suppress prices for recycling vessels, driven by fluctuating global fundamentals. The ship recycling market is currently positioned in a precarious place as it braces for what is expected to be a period of declining prices, possibly extending through Q1 and into Q2.
Impact of Global Events on Recycling Volumes
Ship recycling volumes have been at a decade-long low, primarily due to a combination of older tonnage being extended in service due to global events and war-driven booms in charter rates during 2023 and 2024. As a result, fewer ships were retired during that time. However, as these older vessels continue to deteriorate, the recycling industry has seen an influx of tonnage entering the market since the start of 2025, with a notable increase in arrivals at shipbreaking yards, including Pakistan, which recently made a strong comeback.
Market Shifts Amid Stabilizing Dry Bulk Rates
While the Baltic Exchange’s Dry Index reported stabilization in dry bulk rates throughout January 2025, followed by an uptick in recent weeks, the supply of ships for recycling has continued to rise, albeit with declining offers. Oil prices remain volatile, closing at USD 71 per barrel amid ongoing fears of rising fuel and energy prices. The geopolitical landscape is further complicated by U.S. sanctions targeting Russian, Chinese, and Iranian energy sectors, creating a ripple effect on shipping markets. Despite these challenges, the U.S. Dollar continues to strengthen, which has affected ship recycling in countries like India, where it hit hardest this week, as many vessels are sent east from the Red Sea.
Currency Depreciation and Steel Price Declines
The weakening of currencies in key ship recycling nations and the decline in steel plate prices have added pressure to an already strained market. Vessel offers across subcontinent markets have cooled considerably, even during a time that would traditionally see stronger offers. This is particularly evident in India, where the effects of currency depreciation have been keenly felt. Despite this, shipbreaking markets in South Asia are still witnessing demand, though the overall volume and pricing are much lower than expected.
Challenges in the Tanker Sector and LNG Markets
Tanker rates have been soaring, with owners repositioning their units in response to rising rates and international sanctions. However, the tanker sector may be facing a shortage in recycling candidates this year, as rising rates and sanctions push owners to keep their vessels in service. Meanwhile, LNG carriers from Korea have contributed to some recycling activity, but overall supply remains strong for the coming quarter(s). As tariffs on Chinese products, including steel, are expected to come into effect soon, the excess steel and its potential entry into the ship recycling market could spell trouble, further pushing down prices.
Geopolitical Instability and Market Fluctuations
The global political climate remains volatile. With ongoing unrest in Bangladesh, economic setbacks in India, and Turkey's internal challenges, the post-Chinese New Year period has not provided the stability that markets were hoping for. Ship recycling is continuing, albeit at lower levels, with persistent demand from all markets, but the future remains uncertain.
In light of these fluctuating conditions, the ship recycling industry faces a future marked by lower pricing, increased competition for tonnage, and the unpredictable impact of tariffs. With shipowners holding off on recycling due to rising charter rates and geopolitical instability, the months ahead will likely see a continued struggle between market forces, economic shifts, and the price of steel.
