The ship recycling market continues to be plagued by issues surrounding letters of credit (L/Cs) in South Asia and beyond according to a report in Hellenic Shipping News (HSN).

South Asia is the global centre of the ship breaking and recycling industry, with Bangladesh, India and Pakistan accounting for around 75 per cent of the international recycling market for ocean going vessels. China and Turkey meet most of the remaining market demand.

L/C restrictions

Earlier this year, Bangladesh - which has the largest share of the global ship breaking and recycling market - restricted the use of L/Cs for non-essential imports (DC World News, 20 May 2022). Pakistan's banks have recently been unable to provide L/Cs at all or are demanding a 100 per cent cash margin (DC World News, 10 June 2022).

Citing a weekly report by shipbroker Clarkson Platou Hellas, HSN says sentiments of recyclers in Bangladesh "remain weak largely due to the L/C issues which prevails in the country for the opening of the L/Cs with, still only a certain number of end users (recyclers) able to open L/Cs with a higher value."

Market confidence lacking

A separate report by the world's leading cash buyer of ships, GMS, says that due to currency volatility and the inability of recyclers to pay the prices demanded by sellers of ships for recycling, most yards in India, Pakistan Bangladesh, and even Turkey, are lying idle and will likely remain that way for the rest of the year.

"Constant currency depreciations have been the chief culprit and there seems to be a lack of confidence to import vessels, with banks being much stricter on sanctioning precious US dollar L/Cs for vessels for recycling," the report concludes.

The article in Hellenic Shipping News, Letters of Credit Hampering the Ship Recycling Market, can be found here.

This article represents the views of the author and not necessarily those of the ICC or Coastline Solutions.