China's ship-breaking industry swimming through troubled waters

A worker dismantles a 100-ton cargo vessel at a wharf in Shaoxing, Zhejiang province. [Rui Chang/For China Daily]

A typical scrap yard used to employ 230 workers in 2013. Now, their number has plummeted to around 170 due to cost-cuts, delayed payments and attrition.

Yang said even though the government offered subsidies to ship-breaking companies to buy vessels, it is extremely hard to make any profit. And banks are not willing to lend because they are aware how sluggish the business is.

"Just like shipbuilding, ship-breaking is listed as a high-risk industry by banks."

The latest figures show China's ship-breaking industry's revenue dropped 15 percent to 3.4 billion yuan ($519 million) last year.

Wu Jun, vice-president of the Beijing-based China National Ship Recycling Association, said because China is taking action to scale down infrastructure and real estate investment while using restrictive measures to cut production capacity in its steel plants, the country currently does not need a large amount of scrap as a source of steel at the moment.

"Under such circumstances, it will be cumbersome for Chinese ship-breaking yards to sell scrap even at a bargain price to the market this year," Wu said. "Last year was the fourth consecutive year that the industry has suffered financial losses."

The association's findings showed as the world's largest recycler of material from ship-breaking yards, China dismantled 5.1 million dead weight tons in 2015, accounting for 22.14 percent of the world's total. India, Bangladesh, Pakistan and Turkey were its main rivals in this business.

Chinese companies signed contracts with both domestic and foreign shipowners to dismantle 6.84 million DWT of scrap vessels in 2015, down 28.7 percent from the previous year.

"The relatively high prices of both foreign and domestic scrap ships are also cutting the profit margins of Chinese companies as many have been reporting financial losses for the past several years," said Zhao Ying, a researcher at the Institute of Industrial Economics under the management of the Chinese Academy of Social Sciences in Beijing.

China's ship-recycling yards are mainly located in Zhejiang, Jiangsu, Shandong and Guangdong provinces, collectively employing around 120,000 workers. Their jobs are now under threat.

The drop in scrap prices has seen firms storing supplies in increasing amounts, rather than offloading it cheaply to steel plants, said Zhao.

Affected by low commodity and crude oil prices, the China National Ship Recycling Association said the number of bulk vessel and offshore oil rigs actually being dismantled has grown more than 30 percent in the past year, adding to the oversupply of underpriced scrap.

Copenhagen-based Baltic and International Maritime Council, the world's largest international shipping association, predicted that 2016 would be the busiest year for breaking of dry ships. Around 40 million DWT of bulk ships will be dismantled, up 25 percent year-on-year.