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Ship-breaking industry: Uncertain future

Ship-breaking activities at the once overworked Gadani have come to a complete standstill at present

By Syed M. Aslam
Apr 23 - 29, 2001

Gadani, an otherwise sleepy coastal stretch located at comfortable distance from Karachi, shot to international prominence in the early 1980s as the biggest ship-breaking yard anywhere in the world not so long ago. Today, it is facing an uncertain future partly because of substantial increase in the international prices of ship scrap and partly due to high import duty.

There are many who feel that excessive taxation is cutting the very supply of oxygen to the once thriving ship-breaking industry no differently than the proverbial killing of goose which laid the golden egg. While Gadani withers, the other countries of the region, like India and Bangladesh, have designs to replace Gadani with their own substitutes if their alacrity to lower import duty on ship scrap is any indication. The slowing down in the ship-breaking industry is costing the national economy much more than the lost taxes as hundreds of steel re-rolling and re-melting mills owe their very existence to the ship-breaking industry.

According to Chawdhary Abdul Majeed, the chairman of Pakistan Ship-Breaking Association, ship-breaking activities at the once overworked Gadani have come to a complete standstill at present. There is not a single ship to scrap and the collective ship-breaking during last 10 months have fallen to a low of 160,000 tonnes compared to a million tonnes scrap produced at the yard during its peak productive years in the early 1980s.

The drastic decline in the output has not happened overnight. It has declined gradually since late 1980s: From one million tonnes a year to 800,000 tonnes, to 600,000 tonnes and finally to the drastic low of today.

Hundreds of steel re-rolling and re-melting mills in Pakistan either owes their very existence or depends heavily on the ship-breaking industry for the supply of ship plates. The small re-rolling mills are worst hit by the non-availability of ship scrap as they entirely depends on ship plate compared to the bigger ones which can afford to use a comparatively more expensive iron billet of the Pakistan Steel. The small re-melting mills are facing a similar situation unlike the big counterparts which can afford to use iron ingot.

That explains the closure of tens of steel re-rolling mills in Karachi during last many years. The chairman of Pakistan Steel Re-Rolling Mills Association, Abu Obaida Farooqui told that numerous small mills have been closed in Karachi over the years and some medium and big ones could have been closed if the demand had not been low, primarily due to slump in the construction industry.

The non-availability of raw material, ship plate, has forced the existing re-rolling mills to switchover to iron billet from the Pakistan Steel. This shift on the part of the re-rolling mills is resulted in increase demand for the Pakistan Steel's billet, the price of which has registered a substantial increase of 16 per cent in the last six months from Rs 16,000 per tonne to Rs 18,500 per tonne.

The idling of the ship-breaking industry have forced the steel re-rolling and re-melting mills, particularly the big ones, to replace comparatively less costly ship plate by a more expensive Pakistan Steel billet. While the slump in the construction industry has somewhat kept the price increases at bay at present, the question is what would happen when the construction activities pick up. The time to act is now to save the ship-breaking industry from a total collapse or else the situation would only become much worse in the years to come.

The excessive duty on the import of ships for scrap in addition to inconsistent policies have not only dealt a fatal blow to the ship-breaking activity but is also bound to increase the production costs which would take a heavy toll on the construction industry, as and when it comes out of the current slump. The situation would no more be under control then.

Today, India and Bangladesh are all poised to replace Pakistan as the ship-breaking giant which it once was. Tracking back the history of the Pakistani ship breaking industry one witnesses many ups and downs. The Industry was at its peak during the early 1980s and witnessed a slump in the late 1980s. It was revived in the early 1990s due primarily to the slump in prices of ships for demolition in the international market.

Today the situation is worsened by the fact that less ships available for demolition in the international market thus fuelling an increase in the demand. The demand for ship scrap thus far surpasses the supply meaning that ship breakers have to pay a premium price to bring a ship at Gaddani. Slapping high duty on the import of ships for breaking purposes in such a scenario can hardly be termed as wise. As is, the ship breaking, a highly energy consuming industry by its very nature, today has to absorb the drastic increases in electricity and gas tariffs like everybody else. The high import duty is on ship scrap makes all the less sense as ship scrap is basically classified as a secondary raw material.

Meanwhile, Majeed told PAGE, that his association would brief the Finance Minister Shaukat Aziz about the concerns and problems faced by the ship-breaking industry and its possible revival.