Stranded Vessels and Sanctions: The Impact on Ship Recycling Transactions
As highlighted in last week’s edition of the GMS Weekly, two VLCCs (Very Large Crude Carriers) that have fallen victim to USDN (U.S. Department of the Treasury’s Office of Foreign Assets Control) sanctions remain stranded outside Bangladeshi waters. These vessels face an uncertain future, and their predicament has raised concerns among cash buyers and ship recyclers. As a result, these stakeholders are becoming more cautious and meticulous in their due diligence when negotiating deals for vessels, especially those with any connection to sanctioned sources. The lack of a clear resolution for these two vessels serves as a reminder of the growing risk involved in recycling units with a dubious background. Despite the fate of these two vessels, it remains to be seen how future transactions involving vessels from sanctioned origins will unfold, potentially shaking up the recycling market further.
Market Volatility: Oil Prices and the Dry Bulk Market
In broader market terms, the year 2025 continues to surprise with its economic volatility. Macroeconomic fundamentals are shifting unpredictably, leaving many in the market unsure of what to expect next. Oil prices, for example, have experienced fluctuations, finishing the week higher at USD 69.40 per barrel despite an overall decline throughout the week. This is largely due to the impact of new sanctions on Iran and Venezuela, which have added a layer of uncertainty to the global oil markets. The fluctuations in oil prices are a key indicator of larger market shifts, with potential downstream effects on shipping and recycling markets as well.
Meanwhile, the dry bulk market experienced a rare downturn as charter rates across most sectors—including Handies, Panamaxes, Capesizes, and Supramaxes—fell, resulting in a decrease in the overall Baltic Dry Sea Freight Index. These declines in the freight market often signal broader economic challenges, especially in global shipping. However, this downturn also led to a slight uptick in recycling inquiries from sellers eager to offload vessels. This presents a mixed picture for the recycling sector, where some regions and market segments appear to be in decline, while others show signs of increased activity.
Shifting Regional Dynamics: Pakistan Surpasses India in Ship Arrivals
Interestingly, Pakistan has emerged as a more active player in the ship recycling market this week, surpassing India in vessel arrivals despite an overall drop in the number of ships entering the region. This suggests that the dynamics in the sub-continent are shifting in unexpected ways. While India has traditionally been the dominant player in ship recycling, Pakistan’s increasing role may signal a shift in regional preferences. Pakistan’s emerging dominance, particularly in the face of challenges elsewhere, may also signal an evolution in regional competition as countries adjust to the changing economic landscape.
Steel Price Fluctuations: Diverging Trends in Ship Recycling Markets
Focusing on domestic fundamentals, steel plate prices have seen contrasting movements across the key ship recycling markets. In India, prices have surged significantly, while in Pakistan, they have experienced a continued decline for the past month. This divergence in price trends is reflective of the broader shifts occurring within the region. In India, the rise in steel plate prices could indicate a stronger domestic market, potentially driven by increased demand for ship recycling materials. In contrast, Pakistan’s continuous decline in steel prices poses challenges for local recyclers who may struggle to stay competitive in the face of falling steel values.
Meanwhile, prices in Bangladesh and China have remained relatively flat, creating a more stable but less dynamic market environment. The lack of significant movement in these markets suggests a cautious approach to recycling, possibly in response to the ongoing global uncertainties. Despite these mixed signals, Bangladesh is showing surprising strength, buoyed by a few aggressive recyclers even as the country celebrates the Eid holidays and the conclusion of Ramadan. On the other hand, India and Pakistan are struggling to keep pace due to a shortage of available vessels for recycling, leading to growing demand and a tighter market.
Bangladesh’s Resilience: A Bullish Outlook Amidst Uncertainty
Despite the challenges faced by other regions, Bangladesh is displaying an unexpectedly bullish outlook. While the country is in the midst of the Eid holidays and Ramadan’s conclusion, a few aggressive recyclers are keeping the market buoyant, driving prices up slightly above USD 450/LT LDT for select units like tankers and containers arriving from the Far East. This is in stark contrast to India and Pakistan, where the available supply of vessels for recycling remains limited. Bangladesh’s resilience could be attributed to the active participation of a few key players who are capitalizing on favorable market conditions for high-value vessels.
However, this increase in demand in Bangladesh has not been enough to significantly impact the wider market, as other nations face challenges with decreasing steel prices and a lack of available units. Despite this, Bangladesh continues to position itself as a key player in the recycling market, as its limited but high-value offerings continue to attract interest.
Regulatory Pressures: The Hong Kong Convention and Yard Upgrades
Looking ahead, regulatory deadlines are beginning to loom large in the ship recycling industry. The Hong Kong Convention (HKC) compliance deadline on June 26th is a critical milestone for recyclers worldwide, setting the stage for major changes in how ships are recycled and ensuring that yards meet specific environmental and safety standards. Additionally, the deadline for Bangladeshi shipyards to complete necessary upgrades by March 31st remains a significant challenge. With no extension granted for this deadline, many recyclers in Bangladesh could find themselves unable to import vessels post-Eid, placing additional pressure on the market.
Meanwhile, Pakistan is in the early stages of upgrading its recycling yards, requiring significant work to remain competitive in the future. This process of modernization could take months or even years, which means that Pakistan may struggle to keep up with its regional competitors unless significant investment and planning are made. Despite these efforts, Pakistan’s ability to meet international standards may determine its future in the global ship recycling market.
Turkey’s Growth: Riding the Wave of a Weak Lira
In the midst of all these challenges, Turkey has managed to carve out a distinct advantage, riding on the back of a depreciating Lira. The weak Lira has made Turkish ship recycling yards more competitive on the international stage, with recyclers from other countries looking toward Turkey as an attractive alternative. As other regions like India and Pakistan face challenges with pricing, steel costs, and regulatory hurdles, Turkey’s strong position could allow it to leave its competitors behind. As we head into the second quarter of 2025, Turkey’s ship recycling sector seems poised to grow, capitalizing on the market’s shifting dynamics and its own favorable economic conditions.
Key Takeaways:
• Sanctioned VLCCs: Two VLCCs remain stranded outside Bangladesh, increasing caution among cash buyers in the ship recycling market.
• Oil & Freight: Oil prices remain volatile, with fluctuations influencing shipping and recycling markets. Dry bulk charter rates fell, impacting the Baltic Dry Sea Freight Index.
• Pakistan’s Rise: Pakistan has surpassed India in ship arrivals, signaling shifting regional dynamics in the recycling market.
• Steel Price Divergence: Steel plate prices are rising in India but falling in Pakistan, with Bangladesh and China holding steady.
• Bangladesh’s Strength: Despite regional challenges, Bangladesh remains resilient, with recyclers offering competitive prices for high-value units.
• Regulatory Pressures: The HKC compliance deadline in June and the need for Bangladeshi yard upgrades by March 31st put pressure on recyclers to meet global standards.
• Turkey’s Competitive Edge: A weakened Lira is allowing Turkish recyclers to stay ahead, positioning Turkey as a key player in the recycling market.
