The Ripple Effect of Tariffs on the Ship Recycling Sector
In recent weeks, global markets have been rocked by President Trump’s uncalculated tariff wars, resulting in significant economic upheavals. While the U.S. dollar was positioned as a somewhat unexpected beneficiary, it’s clear that the ongoing trade conflicts are affecting multiple sectors, including the global ship recycling industry. The U.S. tariffs, particularly those on Chinese steel and aluminum, have disrupted the ship recycling market, with tangible repercussions across India, Pakistan, and Turkey.
This week saw the U.S. dollar decline against almost every major ship recycling destination, except for Turkey. Here, the dollar dropped nearly 0.5%, creating an all-time record low. In an unexpected twist, the continued tariff tensions and global inflationary pressures have had far-reaching effects, extending even to oil prices. The barrel price of oil fell further to USD 70.7 after rumors of potential peace talks between Trump and Ukrainian President Zelensky, as well as a meeting between Trump and Putin to discuss the Ukraine war.
Despite the tumultuous atmosphere and lower oil prices, the supply of tonnage for ship recycling remains strong, with many vessels continuing to arrive at anchorage yards. However, the industry is increasingly sensitive to the knock-on effects of the trade wars, especially in India, which has long been a key player in ship recycling.
India’s Struggles with Steel and Aluminum Tariffs
India, despite Prime Minister Modi’s visit to the U.S. to smooth diplomatic relations and prevent the imposition of tariffs on Indian products, has been grappling with the consequences of the 25% tariffs placed on Chinese steel and aluminum. This has destabilized the ship recycling market, where cheaper steel from China previously helped keep ship recycling prices competitive.
The flooding of cheaper Chinese steel into Indian markets has led to a significant collapse in steel prices across the subcontinent. Even though the Indian government has introduced anti-dumping tariffs to curb the flood of these cheaper materials, the market remains nervous about how trade wars will continue to influence the ship recycling industry.
Since the start of the year, ship recycling prices have continued to decline, with a notable drop of USD 30 per LDT. The downward pressure on prices is particularly evident after steel plate prices in India fell by more than USD 11 per ton over the past two weeks. This sustained price decline further underscores the volatility and uncertainty in the global ship recycling market.
Turkey: A Beacon Amidst Global Turmoil
While the U.S. dollar has fallen against most ship recycling destinations, Turkey remains a rare exception. Despite global economic tensions, Turkey has benefitted from a stronger position in the market, with prices for ship recycling units remaining relatively stable. This is in stark contrast to the situation in India and Pakistan, where the introduction of tariffs and the influx of cheaper materials have hurt the domestic steel industry and contributed to deteriorating recycling prices.
Turkey has managed to maintain its position by continuing to attract ship owners looking to recycle their vessels, even as the global economy remains in flux. The continued inflationary pressures and declining charter rates have not yet deterred the country's ship recycling industry, which has seen sustained interest from shipowners seeking to dispose of older vessels.
Challenges for Pakistan’s Ship Recycling Industry
In Pakistan, the ongoing challenges in the ship recycling market have been exacerbated by the global economic downturn and a series of trade tariffs. Ship recycling yards in Pakistan are still in the process of upgrading their facilities to meet Hong Kong Convention (HKC) standards ahead of the HKC's entry into force after June 30, 2025. The country’s only ship recycling yard delivery of the year was concluded this week, marking a slow start to the year for the Pakistani market.
The HKC upgrade poses both challenges and opportunities for Pakistani recyclers, as it demands compliance with environmental regulations while presenting the potential for greener and safer recycling processes. However, the economic challenges facing the industry may result in more volatility as the deadline for HKC compliance looms closer.
Looking Ahead: A Year of Uncertainty and Potential
The first quarter of 2025 has already proven to be difficult for the ship recycling industry, with the overall market seeing a sharp decline in prices, particularly in India and Pakistan. The volatility caused by the tit-for-tat tariffs and international trade disputes has shaken confidence, and there is growing uncertainty about how these issues will evolve in the coming months.
Despite the challenges, the ship recycling industry still has the potential for a landmark year, especially as the industry adjusts to the implementation of the Hong Kong Convention and the ongoing pressure from global economic instability. As shipowners continue to face the prospect of aging fleets, the need for ship recycling will only continue to grow, creating both opportunities and challenges for the global market.
In the coming months, the ship recycling industry will likely see further disruptions due to the global economic climate, yet this could also present opportunities for those who manage to adapt to the changing market conditions. New regulations, evolving market dynamics, and the eventual end of the trade wars may bring a new phase of growth and stability for the industry in the years ahead.
