The prices of ships for scrap have shot up by 100 percent during the last two months to new peak of $500 per ton of light displacement tonnage (LDT), ship breaking industry sources told Business Recorder on Saturday. The skyrocketing of prices has been the result of huge gap between supply and demand of steel in the international market, they said.
"Two months ago, ship breakers were paying $250 per LDT to the sellers for scrap ships, which now has gone up to $500 per LDT in the international market", said a leading ship breaker. Despite this dramatic upsurge in the international prices of scrap vessels the country''s ship breaking industry has the potential to compete in the market, he added.
"We have India and Bangladesh as competitors in the field, but due to Pakistan''s geographical proximity to the Middle East the ships coming from this region would come to Pakistan while those anchored in the Far Eastern states may go to Bangladesh or India", he said.
"Being fast growing economies, India and Bangladesh are giving tough time to Pakistan in the international ship breaking market but, God willing, we with the help of the government would make the industry more competitive", he said.
About possibility of any further increase in scrap ship prices in near future he said that the rates were stable and no further rise was likely to take place. "So far, we have stability in the prices and we would do our best to maintain this trend", he said, but added that "in case of any stoppage in the import of scrap ships we would be compelled to increase the rates".
Regarding shortage of steel in the international market, he said that it is due to vested interests which always remain active to create problems like gap between supply and demand, etc.
"We all are helpless before these elements. All we can do is to act according to the trends they promote internationally," he lamented. He said the most expensive vessel is an oil tanker for which ship breakers are paying up to $525 per LDT whereas for a passenger ship buyers pay about $425 per LDT.
When asked about determinants of the price of scrap ships, he said that prices are fixed after evaluation of various factors like maker country of the vessel, government taxes, local and international rates, wastage etc. "We keep our profit margin from 4 to 5 percent in the purchase of a scrap vessel", he said.
The Government of Pakistan in its 2007-08 budget has increased the aggregate of taxes on the ship breaking industry to Rs 5600 per ton, which makes 107 percent surge in the pre-budget Rs 2700 per ton.
Ship breakers in Pakistan, he said, were paying the revised Rs 3660 as general sales tax (GST) and one percent as income tax to the government after an appeal from the Pakistan Ship Breakers'' Association to the latter for restoring the pre-budget tax structure and special procedure for sales tax.
It is worth mentioning that ship breakers had contributed Rs 500 million as taxes to the national exchequer during 2006-07 by importing 37 scrap vessels of 0.16 million tons weight and Rs 5600 million worth. It is interesting to note that the Gadani based industry, which was once world''s top ship breaking industry, has been working without electricity and fuel supply ever since it was established almost 40 years ago.
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