Interesting read, two things stand out for me, one is that the ship breaking in India/Pakistan/Bangledesh is not cost competitive given what seems like no, or very little (note the comment about cementing an area) investment in the facilities.
And the second is the huge export boosts from China in iron and steel. (alleged in the article to be below cost but there wasn't really any support for that argument.)
Any insights on why companies doing ship breaking wouldn't invest at least some of the returns into their own facilities? I could understand if it was a sort of "one and done" thing where you never expected to break a second ship, but since they suggest there is 30 years of experience here, what is the process whereby people don't figure out ways to do it better/more efficiently/safer? I would expect that eventually this would be an ideal robotics sort of application (assuming you are ok with a mobile robot carrying around a plasma torch :-)
As for China, their behavior has been consistent over the last 50 years at least, which is that acquiring foreign currency reserves are more important than profits. They still import a lot of "stuff" so that is going to be critical to economic growth. There is a long tradition of exporting natural resources to fund those reserves, whether it is Russian's oil, or South Africa's mineral wealth. But if they are being forced to cut prices to keep those reserves flowing, that's an interesting data point on their economic health.
"And the second is the huge export boosts from China in iron and steel. (alleged in the article to be below cost but there wasn't really any support for that argument.)"
The quote from the article is “China is selling below the price of recycled steel”.
I interpreted that to mean that at current prices new steel from China sold at the market rate is cheaper than recycled steel. So no 'below cost' shenanigans, just comparable products moving in out-of-sync market cycles.
And yes, businesses the world over can be guilty of not reinvesting in facilities. There's a mantra for change that says "If we always do what we've always done, then we'll always get what we've always got". Unfortunately, many business owners in good times think that's true as well! And so they fail to make the necessary improvements when they can, and can't afford it when they have to.
Or it could be that Chinese companies were stockpiling steel (as the price was rising), and are now trying to sell it off now that the price is dropping.
So if you've got a great big lump of steel, it's not cost effective to break it apart to sell right now.
I work in the steel industry, virgin steel not recycled steel and we are having the same problems. China has so much excess domestic steel capacity that they are now flooding the international export market and the price of Coil has tanked.
'When asked about the cabbage conundrum, one trader told Platts he would be "better off going home to plow the fields rather than try to make money selling steel".'
> Any insights on why companies doing ship breaking wouldn't invest at least some of the returns into their own facilities?
> people don't figure out ways to do it better/more efficiently/safer?
From the article, it sounds like cost is really the only competitive advantage the Southeast Asian shipbreakers have.
The capital and maintenance expense of facility upgrades would probably destroy any (cost-based) competitive advantage. Labor is really, REALLY cheap in India. The corresponding economic gap is actually a big catch-22 insofar as investing in automation, but that's a discussion for another time...
There was a documentary a while ago about the building of the QE2 in Scotland in the mid 60s. One of the former trade union leaders interviewed remarked that in hindsight the giveaway that things for the UK shipbuilding industry was going to go badly was they were using equipment built in 1905. We see this stuff all the time across the world.
The short term risk of upgrading can be an awful lot more than financial. Vested local interests can often cause all sorts of problems. Especially if your investment in new equipment leads to you essentially trying to compete on highlighting local environmental and labour abuses. Combine that with humanity's natural "it's been good so far, why wouldn't it continue?" inclination...
The transformative event seems to be the EU environmental regulations (where prior to the change they were cost competitive without making investments).
>> And the second is the huge export boosts from China in iron and steel. (alleged in the article to be below cost but there wasn't really any support for that argument.)
It's just a well known fact. The major iron and steel mills have 100K or so employees each. They receive billions of $ subsidies annually to save those people from unemployment and potential social unrest.
There is a lot not shown in this article. Ship breaking is extremely dangerous and thrives in these parts of the world because you don't need to provide safety equipment or procedures and when one of your employees gets killed/maimed in the process there is someone else eager to take his place and no lawsuit from the deceased's uneducated family.
If one country tightened controls on ship breaking then, by the laws of capitalism, the work would just go to the next country with the lowest labour costs who has less overheads so can pay more to buy the ship from its owners in the first place.
Global(ish) controls mean temporary disruption to the status quo but hopefully eventual improvement of working conditions for the people doing the grunt work at the bottom.
Obviously China can't keep producing dirt cheap steel forever so ship breaking will bounce back, hopefully with slightly less misery for its employees.
I'm not going to fully defend the practice but it's more complicated than you make out. These are societies that don't have natural resources in many cases. For a country like Bangladesh this is a source of Steel akin to an iron mine.the point is as long as we live in nation states with extraordinary in equality based on natural resources we will never avoid these kind of problems we can just put them under the rug and encouragement labor to do other things or do nothing at all and flounder in poverty. again it is not pretty and a brutal reality but I also have some level of respect for entrepreneurs or willing to deal with the situation that they have and try and turn it into something more.
remember that this is the country with half the population of the United States that's essentially locked into a place like Louisiana that doesn't control its own River resources
Agreed - I'm sure they can drop the price of steel in the short term. But when they're eventually forced to go back to paying Australians $100/hour to dig the ore out of the ground for them, the economic prospects of pulling ships apart for recyclable steel will improve.
I'm mystified by a few things in this article. Specifically, why are scrapyards closing?
The first thing the article names as a cause is the currently low price of scrap steel. Ok, but then what happens when a ship gets too old to use if not scrapped?
Another cause named in the article is new EU rules for EU flagged vessels. Couldn't the owners just reflag to a non-EU country prior to scrapping?
> Ok, but then what happens when a ship gets too old to use if not scrapped?
The old fashioned way is to scuttle a ship.
I would guess that scuttling a ship so that it descends into a deep sea trench would have minimal environmental impact. Any toxins would be contained by the immense pressure.
I would guess that scuttling a ship so that it descends into a deep sea trench would have minimal environmental impact. Any toxins would be contained by the immense pressure.
No, that's not how it works.
Any vessel unable to withstand the extreme pressure will rupture, and then anything contained within it will move to the point dictated by its density.
The scrapyards that have gone out of business aren't paying that. Their competitors, finding themselves in a more monopsonistic situation, might not be either.
I misread the article, where it says at the moment ship owners are getting $3.6M less than they used to. I thought it said that that was what they were getting.
A company in the SF Bay Area tried to start a ship breaking on Mare Island, but couldn't make it work. Many ships are taken to Brownsville Texas for ship breaking, including the ghost ships (old navy ones) in Suisun bay.
And the second is the huge export boosts from China in iron and steel. (alleged in the article to be below cost but there wasn't really any support for that argument.)
Any insights on why companies doing ship breaking wouldn't invest at least some of the returns into their own facilities? I could understand if it was a sort of "one and done" thing where you never expected to break a second ship, but since they suggest there is 30 years of experience here, what is the process whereby people don't figure out ways to do it better/more efficiently/safer? I would expect that eventually this would be an ideal robotics sort of application (assuming you are ok with a mobile robot carrying around a plasma torch :-)
As for China, their behavior has been consistent over the last 50 years at least, which is that acquiring foreign currency reserves are more important than profits. They still import a lot of "stuff" so that is going to be critical to economic growth. There is a long tradition of exporting natural resources to fund those reserves, whether it is Russian's oil, or South Africa's mineral wealth. But if they are being forced to cut prices to keep those reserves flowing, that's an interesting data point on their economic health.