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China shipbreakers face difficult year ahead

China's shipbreaking sector is expected to face a difficult year ahead as the country's domestic scrap prices continue to fall, reports said.

Factors that would contribute to potential losses for the shipbreaking industry in 2014 include government plans to limit steel output, lower ferrous scrap demand, high purchase prices for unwanted vessels and a steady decline in scrap prices, the China National Shiprecycling Association told Platts.

The association said its member companies have a high inventory of around 500,000 tonnes of unsold ferrous scrap at the end of 2013, suggesting that shipbreakers were struggling to find demand from the market.

China's stricter environmental standards have also raised costs for domestic shipbreakers, making China less competitive against other major ship demolition markets of Bangladesh and India, the association was reported as saying.

China's ministry of transport had announced in December last year a policy that will offer subsidies of RMB1,500 ($247) per gross tonne to shipping companies that scrap their vessels before their operational expiry dates.

The subsidies would be given in two tranches – one upon the completion of the vessel demolition and another after the construction of the new replacement vessel.

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