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'Bloodbath' for shipbreakers as Indian rupee tumbles

'Bloodbath' for shipbreakers as Indian rupee tumbles
The sharp slide in the Indian currency is causing losses to mount for shipbreakers in India, Pakistan and Bangladesh and some yards are on the verge of closure. In early-morning trade on Thursday, 22 August, the Indian rupee had slid below the psychologically debilitating level of INR65 to the US dollar; and was trading at INR65.41, an all-time low.

Analysts have predicted that the Indian currency may slide further to a level of INR70 to the dollar in the next few weeks.

The slide of the Indian currency has been as inevitable as it has been inexorable. From a level of INR54.35 against the dollar on May 21, the rupee has lost 18% in a matter of just three months, as high demand for the greenback continues. It is the single worst performer in emerging Asia.

Across the three big ship demolition markets, recyclers are sitting on huge losses running into millions of dollars on their inventory. The market has hit panic mode.

There is scope for end buyers to retreat from the deals signed, creating further confusion. Several yards are on the verge of closing down, while others are struggling to remain afloat. The rupee slide seems to have upstaged all market dynamics.

As the currency continues to remain in a perilous state, a recent recovery in steel prices has given the industry some breathing space. Cash buyers have had little option but to push the boundaries of breakeven economics.

“The situation is very bad in the market; people have lost a lot of money. It is a complete bloodbath,” said Nitin Kanakia, secretary of the Bhavnagar-based Ship Recycling Industries Association of India (SRIA).

As cash buyers struggle with deliveries, end buyers slow down their purchases. Since vessels are purchased on dollars per ldt basis from cash buyers and resold locally in rupees per tonne, the value of inventories in India has plummeted significantly over the past ten days.

“Ships have continued to become more expensive, leaving many end buyers simply unwilling to offer on any new tonnage entering the market,” said Kanakia.

With many end buyers losing considerable money, there are virtually no deals taking place. There is no parity. Many of the ships which have been committed earlier are finding no buyers once they reach shore.

“Many are backing out from earlier fixed deals and renegotiation is taking place,” said Kanakia. “The disparity is caused by speculative buyers who commit at a high price in the hope that things will improve.”

The industry has also accused cash buyers of manipulating the market prices and keeping them high. There are cash buyers with vessels yet to be sold and who may hold off until some sort of recovery is seen. Most end-buyers are unable to shift the inventories in their yards, leading to a stockpiling of unsold steel.

While steel prices have remained volatile and unreliable, there are hopes in the market that such a sharp shock to the system may prompt some more realistic buying. With all end buyers losing money on vessels purchased this year, a logical adjustment in prices appears imminent.