Restricted growth of ship breaking industry
Tariff on import of ships for scrap is increased by over 40 per cent which is more than the maximum import tariff of 35 per cent on finished goods
By Syed M. Aslam
July 12-18, 1999
The existence of hundreds of steel rerolling and remelting mills in Pakistan depends on the ship breaking industry which supplies iron scrap. They are also heavily dependent on the construction industry as the major market of their products.
The decision by the government to increase duty on the import of ships for scrap is feared to discourage the ship breaking activity on one hand and increases in construction costs on the other for the ultimate financial inconvenience of the end buyers.
In early 1980s Pakistan had the honor of having the biggest ship breaking complex in the world. Today, it has been replaced by India and Bangladesh forcing Pakistan to slip down to the third position due to what the sources in the ship breaking sector call, the inconsistent policies.
The late 1980s witnessed a period of slackened activity for the ship breaking in the country which once again revived in early 1990s, thanks to the slump in prices of ships for demolition in the international market. As the global marine fleet today comprises of more ships which were manufactured in late 1970s the shortage of ships available for demolition in the international market and the resultant increase in the demand poses new challenges for the Pakistani ship breakers. Number one, with the demand surpassing the supply they have to pay not only a premium price to bring a ship at Gaddani, the primary ship breaking coast in the Balochistan, but also have to pay more customs duty in addition to high power and gas prices.
The biggest concern of ship breakers about the recent tariff increase is that it is highly inequitable. "With the ad valorem duty of 15 per cent, remaining unchanged, the increase in the customs duty by Rs 500 per tonne to Rs 1,500 per has increased the tariff by over 40 per cent as compared to 32 per cent previously. This is highly unjust as the tariff on the import of ships for scrap is increased by over 40 per cent which is more than the maximum import tariff of 35 per cent on finished goods. This is all the more unjust as ship scrap is basically classified as a secondary raw material," a source close to Pakistan Ship Breakers Association told PAGE.
About 90 per cent of the Light Displacement Tonnage, the actual weight of any ship structure, is made up of iron. The remaining 10 per cent comprise wood used in the manufacture of doors, windows and some electrical appliances. The iron scrap from ship breaking is used in two different ways it is either rerolled by using the heat temperature or remelted in the furnace. The resultant iron products from both are being used extensively in the construction industry as iron bars to strengthen the foundation and structure and also to manufacture grills, gates, ingots and billets.
The steel rerolling mills reheat the scrap and pass it under the compressors a number of times to shape it into a particular thickness and size. They basically produce iron bars which are commonly used in the country to strengthen the foundation and structure in the construction works. The remelting furnaces heat the scrap to red hot to manufacture a better quality and more expensive variety of iron bars and pipes, cast iron and metallic castings for various uses in the construction industry. The production cost for rerolling per tonne of scrap today is Rs 3,500 while that for remelting has increased to Rs 5,000 per tonne, Chairman of All Pakistan Steel Rerolling Mills Association, Zafar Iqbal Mirza, told PAGE.
The 350 steel-rerolling units of all sizes including about 50 in Karachi and the rest in Punjab are the major beneficiary of the ship scrap. Zafar Iqbal Mirza, puts the share of the two at 50 per cent. Remelting is solely a Punjab-based industry.
Zafar said that the slow-down in the construction activities nationwide has also taken a heavy toll on the rerolling mills. He claimed that in Karachi alone the daily production of steel rerollers has surpassed the demand and the rerollers are planning to keep their production closed for two-days a week instead of one, and adhere to a strict single-shift production. Our members are producing some 1,300 tonnes of rerolled steel daily whereas the demand is only 1,000 tonnes in the city. In a market where even a 200 tonnes excess production is enough to jeopardize the whole market it has become imperative for us to keep our units closed to stabilize the market, he added. He termed the slow-down in construction as the primary cause of low demand.
Meanwhile, the Pakistan Ship Breakers Association, has written letters to Finance Minister Ishaq Dar to withdraw the 50 per cent increase in the duty on ship breaking. They say that over 40 per cent import tariff on a secondary raw material like ship scrap is highly inequitable when even the finished products enjoy a maximum 35 per cent tariff.
Performance of Ship Breaking Activity in Pakistan
Year Volume (Light Displacement Tonnage)
Over One Million
Source: Pakistan Ship Breakers Association