Pakistan: 'Ship breaking industry in a tight spot'

The country’s ship breaking industry is likely to face a tough time ahead as the average prices of ships have started climbing up in international market and the expected imposition of Value Added Tax on the industry may have worst effect on the industry too, officials told Daily Times. They said the industry has been witnessing quite encouraging activities since October 2008, and in the first eight months of the current fiscal year July-February 2009-10, some 61 small and medium size ships (including cargo ships and oil transporters) anchored at the Gadani shipyard. The industry produced 462,900 tonnes of scrap during the said period. The prices of old vessel have gone up to $420-430 per tonne as compared to $220-230 in 2008, Dewan Rizwan Farooqui, chairman Pakistan Ship Breakers Association said. “Ship breakers are in a tight spot to place orders for more old ships as the prices are climbing up, and raising concerns regarding imposition of VAT is also disturbing activity at beach”, he said.
Ship breakers are paying tax in a special tax procedure suggested by the government and earning almost Rs 16 billion per annum in revenue for the country as compared to Rs 4 billion before this special tax procedure till 2007, he said adding, if this VAT is imposed on the steel producing industry, ‘we would not be able to run our business smoothly’.
Another ship breaker said prices of vessels are not likely to decrease in the near term as buying from competitors like India and Bangladesh have increased and deals for the new vessels have been reported from these countries, which may create demand-supply panic.
He said the recent increase in prices and tax system by the government has discouraged the industry players to predict higher scrap production by the end of 2009-2010.
He said lack of necessary infrastructure facilities including roads, utilities like electricity, drinking water or any arrangement for providing first aid or medical help to the workers are the major issues of the industry’s labour.
Hundreds of steel re-rolling mills in Pakistan either owe their very existence or depend heavily on the ship-breaking industry for the supply of ship plates. The smaller re-rolling mills are worst hit by non-availability of ship scrap as they entirely depend on ship plates as compared to the bigger ones that can afford to use a comparatively more expensive iron billet of the Pakistan Steel. Ali Ahmed, vice chairman Pakistan Re-Rolling Mills Association said.
He said the steel re-rolling industry of the country is in deep crisis, as the re-rolling mills, because of not having sufficient raw material are running on as low as 40 percent production capacity against the normal 80-90 percent.
It is pertinent to mention the prices of “sirya” in the local market is hovering at Rs 54,000-55,000 per tonne as compared to lowest price of Rs 40,000 per tonne last year when the vessels were easily available at $250-280 per tonne. Gadani, situated about 50 kilometers northwest of Karachi in Lasbela district, has been known for its ship-breaking yards since late 1970s. In the 1980s, Gadani was described as one of the largest ship-breaking yards in the world, with more than 30,000 direct employees, however, competition from newer facilities in India and Bangladesh lessened its output, and in later years, it shrunk to producing less than a fifth of the scrap it used to produce two decades ago.