This year, a large number of vessels are expected to be sent for recycling worldwide. It is believed that the capacity of major recycling yards may not even be enough for everyone.
Meanwhile, the process will become even more complicated for both shipowners and shipyards due to the need to comply with the new requirements of international law (the Hong Kong Convention).
Perhaps this is a chance for Ukraine to prove itself in the ship recycling market? Especially since we have a demand for scrap metal ourselves - domestic metallurgists need it. And it is a hard time for shipyards.
This year, a significant portion of the world's merchant fleet will be scrapped, and there will be plenty of work for recycling yards in the years to come. At least this is what the market expects, given certain factors.
For example, Global Marketing Systems (GMS) cites uncertainty in global shipping due to politics and tariffs as a factor. Falling freight rates are pushing shipowners to put their over-aged vessels on the chopping block.
Another factor that analysts point to is the expected “thawing” in the Red Sea. The truce in Gaza opens up the prospect of further easing the situation with transit through the Suez Canal. This means that container ships will not have to go around Africa, voyages will be shorter, and there will be no need for the amount of fleet that was in demand last year.
According to Lloyd's List Intelligence, the recycling market was previously forecast to revive in 2024, due to the fact that a significant number of vessels are reaching the end of their useful life and increasingly stringent emissions regulations. But high freight rates because of the Red Sea diversions have tempted fleet owners to decide that their old ships will still be afloat.
In addition, the sanctions have also made old crude oil tankers in demand, which otherwise would have been sent for scrapping, analysts say.
They also believe that the recycling of ships will be stimulated by increasingly stringent global greenhouse gas emission standards. They say that if these standards did not have such a significant impact last year (and this was expected), they will have in 2025, because they are combined with the other factors listed above.
Thus, vessels are already lining up for recycling. And if bulk carriers are the first to go, container ships will follow in the near future, GMS predicts.
By the way, according to BIMCO estimates published in 2023, more than 15,000 ships with a deadweight of more than 600 million tons will be demolished by 2032.
So the recycling yards are rubbing their hands in anticipation. And they don't want to look back on last year, which was very unsuccessful for them: according to Lloyd's List Intelligence, 324 merchant ships with a total gross tonnage of 4.6 million tons were dismantled in 2024, which was the lowest level of ship recycling since 2005. Although, if we look deeper into history, it has been worse: back in 1989, only 2.35 million tons of deadweight were counted.
Papers bring order to scrap metal
At the same time, companies specializing in ship recycling will have to take into account some new requirements of international law this year. All major flag states and countries involved in ship recycling have ratified the Hong Kong Convention adopted in 2009. And since June 26 this year, they have to comply with it.
The document is designed to improve safety standards in the global ship recycling industry and make this process without risk to human health or the environment. Among the requirements is an inventory of hazardous materials for the shipowner and a ship recycling plan for the recycling company.
To prepare a ship for recycling, the shipowner must fill out special forms and send them to a yard, which will prepare a recycling plan, after which the shipowner must also apply to the flag state of the ship or a recognized organization to conduct a final inspection.
For EU-flagged vessels, this requirement for an inventory of hazardous materials (IHM) has already been in effect since December 31, 2018. For ships flying other flags visiting the EU region, it will be effective from December 31, 2020. Starting in June of the same year, this requirement will become global.
According to Gudrun Janssens, BIMCO’s EU representative, there will be a need to improve the skills of those involved in ship recycling.
First of all, the main recycling grounds need to be improved, and they are in countries such as India, Bangladesh and Pakistan. It is there that most of the world's fleet is sent on its last voyage. And it is in this region that shipowners receive the highest prices per ton of scrap metal.
National Geographic/Mike Hettwer
And the word “ground” is the most appropriate here, given that these players are notorious for their unpretentious conditions. Medium- and large-tonnage vessels are simply dumped on an unequipped beach, where tens of thousands of people dismantle them with simple tools: acetylene cutters, crowbars, etc. No dry-docking for you.
“One of the practices in this region is to sell tickets that give you the right to dismantle the ship for a certain amount of time. You pay, cut up some pieces that you can hand over later, and leave with what you've managed to cut and assemble. In general, there is nothing left of the ship, not only metal to the last screw, but everything, including some residual diesel fuel or oil, is sold,” recalls Vasyl Fedin, former director of the Kherson Shipyard.
But these are the images we are used to. The HKC has made a big difference, says Walton Pantland, Director of IndustriALL Global Union, to CFTS. “India was the first of the South Asian shipbreaking companies to ratify the Convention, and almost all of the yards have been upgraded now. India is also taking shipbreaking seriously as a sector. For workers, this means they are recognised as part of the formal economy and therefore entitled to social security, when in the past they were informal workers with few rights. India also now includes shipbreaking as part of its national martime policy, so I expect improvements to continue. I expect Bangladesh, and to a lesser extent Pakistan, to follow the same pattern,” he told CFTS.
It should be added here that India currently has 120 shipyards that meet the Convention's requirements, while Bangladesh has only five, which, according to the media, could jeopardize its dominance in the global ship recycling market (previously, it recycled more ships than India).
Nevertheless, it is hardly worth claiming that everything is perfect at all these new and old shipyards. Just six months ago, an explosion at a shipyard in Bangladesh killed seven workers and seriously injured more than ten others during ship recycling. Despite the fact that in March 2023, SN Corporation Unit-2 received a certificate of compliance with the Convention. A commission set up to investigate the explosion found both technical and managerial failures. And the labor unions complained that there were other incidents related to safety violations during the year.
“This shows that the Hong Kong Convention on its own is not adequate. It requires an independent government inspectorate and strong unions on the ground to ensure it is being adhered to. In addition, ship owners should monitor the compliance of the yards they sell too,” said Mr. Pentland.
In the Indian city of Alang, he saw well-organized shipyards where waste is removed and disposed of properly (breaking blocks are moved by crane to an impermeable surface, there are separate areas for each type of work, and processes are clear). But at the same time, I have also seen sites where blocks are routinely cut right on the beach.
National Geographic/Mike Hettwer
The picture is similar in Turkey, whose Aliaga, although not as famous as the “Coast of the Dead” (as Alang is called), is the main site for the dismantling of the old fleet in the region. Since 2018, several Alaga shipyards have been authorized by the European Union to recycle the fleet under the EU flag. The European Commission compiled the list. Last year, in 2024, it included 44 shipyards, including 11 in Turkey.
According to Mongabay, since 22 enterprises are located side by side on an area of about 70 hectares, it is almost impossible to separate responsibility for pollution and incidents. Therefore, although in 2022 two shipyards were removed from the list due to safety concerns, such measures are exceptional. And many things are not checked, which does not ensure the same environmental standards as in the EU. And although the European Commission assures that the inclusion of Turkish shipyards in the selective list has improved these enterprises and helps prevent environmental degradation, it has not solved all the problems.
Experts working in this field drew the journalists' attention to the fact that Alaga does not use dry docks for ship dismantling, only concrete slips with the corresponding risk of waste entering the water. Shipyards are supposed to use traction systems to bring ships to land, but most of them are damaged or lack sufficient capacity. Alaga is simply attractive due to its low cost and quick turnaround. And if they dismantle a large-tonnage vessel here the way shipyards in the EU do, it will significantly slow down the process and make it more expensive.
Nevertheless, the industry is hoping for more international control. “With the exception of the dark fleet, I expect almost all ships to be scrapped at certified yards in future,” suggests Walton Pentland.
“One of the dynamics we are seeing is some yards taking a commercial decision to upgrade yards beyond HKC standards, in the belief that this will give them competitive advantage. They are competing to be the best yard. My hope is that shipowners will recognise this good practice and send their ships to only the best yards, rather than the minimally compliant ones,” says Walton Pentland. According to him, this will send a strong market signal that investment in upgrading yards pays off.
“While there is talk of some displacement to other countries, these countries often don’t have the infrastructure or capacity to be serious contenders. A whole ecosystem has emerged around the yards in South Asia and Turkey, including brokers, financiers and technical specialists, and this will be hard to replicate at scale. Also, there is severe reputational and legal risk for any shipowner that sends a ship to a non-HKC compliant country for scrapping,” he adds.
CNN/Peter Knego
The Turkish syndrome of Ukraine
Ukraine has shipbuilding and ship repair yards, but in general, they have little experience in fleet recycling and it is not much advertised. There are cases of barges and ships being cut for scrap, both on the Danube and, for example, in Kherson. But all this is unsystematic. And even shipowners of Ukrainian-flagged vessels would rather send the ship to Turkey, Romania, or Bulgaria for recycling.
Despite the fact that some old ships owned by Ukrainian owners are going to be scrapped every year. And, by the way, starting in 2025, the State Ship Register of Ukraine will no longer register vessels aged 35 years and older, both sea and river vessels.
Now, when shipbuilding and ship repair plants have lost contracts and suffered damages, they may consider this type of activity. But does Ukraine have any chances to make a name for itself in the global ship recycling market and take a position in the region?
CFTS posed this question to several current and former top managers of the plants, and all of them were skeptical. “We tried it and decided not to do it anymore,” 'We considered this possibility once, but decided it was not worth it,' were the answers given to the CFTS. And the point is not even that there is a lack of technical capabilities for processing medium and large tonnage vessels or specialists.
“It's no secret how meticulous the inspection authorities in Ukraine are, including the environmental authorities. If you start recycling ships for scrap, it means many such visits. So, the issue here is not investment or personnel, but the perfect organization of all processes, which requires time, study of documentation, and gaining specific experience,” Vasyl Fedin, former director of the Kherson Shipyard, commented to the CFTS.
According to him, the doubts of shipyard managers can be explained by similar negative experiences. “Shipyards sometimes deal with scrap metal in the course of their work. For example, if a ship is being renovated. Then it is necessary to split the vessel in half and make an insert. After dividing the vessel into two parts, some scrap metal remains. If it is placed on the ground instead of concrete, this is a violation that is punishable by a fine. It is a violation if corrosive residues get into the soil. I am sure that similar situations have occurred at factories. That's why they are unwilling to engage in mass scrapping of ships or have doubts,” he explains.
In addition, shipyard managers have doubts that they will be able to compete with Turkey. Moreover, Turkey is also the largest regional consumer of scrap. Every year, Turkish steel plants need at least 20 million tons of scrap. And the scrap goes directly from the yards in Alaga to the steel plants. “In our case, the cost of transportation by sea to Turkey is still added, so if we launch dismantling facilities, it is worth it. Therefore, for example, such a yard somewhere in Izmail is not a very good idea, it would be better to have a place where scrap can be loaded immediately and shipped to Turkey,” a top manager of another shipyard told CFTS.
However, the same scheme is possible in Ukraine, as our metallurgy also needs scrap. According to Valentyn Makarenko, Chairman of the Board of Interpipe Vtormet, Ukraine has had a systemic shortage of scrap metal for steel production since the early 2000s. And with Russia's large-scale invasion, the situation with scrap procurement has deteriorated significantly.
“The southeastern industrial regions, which used to provide the bulk of scrap, are the theater of combat actions. The attacks by the Russian-backed militants have also damaged the facilities of a number of scrap processing plants. The industry lacks workers due to the ongoing mobilization. As a result, the supply of metal scrap in Ukraine has dropped several times compared to the pre-war period,” he explained to CFTS.
“This year, the demand for scrap from Ukrainian consumers is estimated at 1.75-1.8 million tons due to the planned increase in steel and steel products output by metallurgical plants. At the same time, procurers said they would be able to gather only 1.45-1.65 million tons of raw materials in 2025. Of this volume, 350 thousand tons are planned to be exported,” Makarenko shared the figures.
“That is why we are happy to see any new players enter the scrap market, including shipyards that will be scrapping old vessels. Any additional volumes of scrap that can be supplied to the market will reduce the shortage for steelmakers,” he emphasized.
In fact, there are those who are ready to lend a hand here. But under certain conditions. “Ocean” could well be engaged in ship utilization. The conditions are just perfect for organizing proper recycling: there is a dry dock, cranes and other equipment to put the ship in the dock without it coming into contact with water or soil,” says Mykola Kapatsyna, co-owner of the Ocean Shipyard (Mykolaiv).
“But the main problem is finance. Turkish yards buy ships with current assets. They have been in this business for a long time and have consumers of this scrap nearby. If a shipyard in Ukraine buys a ship, dismantles it, and then offers this scrap to someone, it will not have the current assets to do so. In Ukrainian realities, shipbuilding has something in common with fleet recycling. Before the war, our plant could not count on bank credits or government assistance. Banks did not understand this business and did not want to give loans. We used to build ships for a foreign customer at our own expense and on trust - the customer did not pay us immediately. Even if we find the funds and buy the ship for scrapping, can we be sure that we will cover it by selling the scrap to Ukrainian steelmakers? What if the price turns out to be lower than what we have already paid?” he shared his considerations with the CFTS.
“I think the process should be structured somewhat differently here. The company interested in scrap buys the decommissioned ship, and we dismantle it at our facilities and deliver the scrap to the customer. In other words, we are paid for services rendered and we do not consider whether to sell the scrap to a Ukrainian buyer or to transport it to Turkey, where it will be paid more,” suggests Mykola Kapatsyna.
Perhaps Ukrainian businesses operating in the shipbuilding or ship repair sector should also take care to make sure that they are known outside of Ukraine. Although, as Mykola Kapatsyna points out, they still have to rely on their own market to a large extent.
“Geographically, we are not as well located as Turkey or Bulgaria and Romania. We are not on the shipping routes, but at the end of the route. For a European shipowner, there must be some very strong motivation to send a ship to us for recycling, bypassing other yards. It is possible to send a vessel with cargo to India, make money on this voyage, and then sell it there for scrapping at an attractive price. For Ukraine, cargo is more difficult, not to mention the price of scrap,” says the co-owner of the Ocean plant.
Of course, in the current environment, Ukrainian plants also face objective obstacles. Among them is the blocked access to the Mykolaiv and Kherson harbors. Nevertheless, with an eye to the future, we can start preparations now.
