The International Association of Independent Tanker Owners (Intertanko) annual meeting in Hong Kong last month heard a drastic Chinese remedy for tanker industry problems.
"During 1985 and 1986 the shipping world experienced one of the worst recessions in history, but fortunately the ship scrapping industry saved the day," said Frank Chao, president of Wah Kwong Shipping Holdings Co. Ltd., Hong Kong.
During 1984-87 many fairly new ships, including oil tankers less than 10 years old, were scrapped. The market recovered slightly in 1987 and by 1988-89 was back to healthy condition.
The two ports that saved the shipping world were Kaohsiung, Taiwan, and Ulsan, South Korea, Chao said. Kaohsiung then had 23 sizable scrapyards and could scrap a very large crude carrier (VLCC) in less than 60 days.
SHORTFALLS
"Today the scrapping industry in these two ports is virtually gone," Chao said. "There is a small amount of scrapping carried out in India, Pakistan, and Bangladesh. Due to lack of capital, facilities, and skill they are able to scrap only small ships."
So where will tanker owners find someone to administer life saving surgery?
Chao believes China is the only country in the world that has a terrific future in the scrapping industry.
China is trying to build its industrial might but cannot produce enough steel to meet development needs. Scrapping tankers would provide a cheap source of high quality steel suitable for reuse in construction.
Along the Chinese coast and Yangtze River there are more than 200 scrapyards with total capacity of about 3 million light displacement tons. Most of those were built after 1983 in good locations with minimal costs.
SUBSIDIES
"When the scrap price was $90-130/light displacement ton, the scrap industry was very profitable," Chao said. "In 1990 it was $230/ton. Today we need a price below $130/ton to make the scrapping business in China viable.
"If the scrap price remains high and we would like to see more scrapping, one of the methods is for shipbuilding countries to subsidize the scrapping industry."
Wah Kwong's dry cargo division is part of an industry-wide scrapping scheme in which owners of ships more than 25 years old pay $1,000/vessel into a pool. Each time one of the vessels is scrapped in an underdeveloped country, the pool is used to pay for $100,000 worth of equipment--particularly mobile cranes and rolling mills--or use at the yard.
"If this scheme is workable, we will encourage intertanko to consider a similar scheme for VLCCs," Chao said.
Copyright 1993 Oil & Gas Journal. All Rights Reserved.
