India's Ship Recycling Industry Poised for Growth at 10% CAGR: Report Projections suggest that India will recycle between 3.8 and 4.2 million GT (gross tonnage) by 2025.
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India's ship-recycling industry, particularly in Alang-Gujarat, has emerged as a global powerhouse in maritime dismantling, playing a pivotal role in the global recycling sector. As of 2023, India holds a 33 per cent share of the world's total ship recycling tonnage, second only to Bangladesh. Despite a recent decline in the volume of dismantled ships due to fluctuating shipping demand, the industry is poised for major growth, with projections indicating a 10 per cent compound annual growth rate (CAGR) by 2028. As per a report by CareEdge Ratings, the global ship recycling industry has experienced a downturn, with a 50 per cent reduction in dismantling volumes between 2021 and 2023.
A significant factor behind this decline was the increased demand for shipping during the pandemic, which resulted in fewer vessels being decommissioned as shipping companies sought to extend vessel lifespans. Freight prices surged, and ships remained in service longer than usual, delaying their arrival at recycling yards. Nevertheless, with stabilizing freight rates and growing numbers of obsolete vessels, the recycling industry is expected to recover, with activity anticipated to pick up pace from 2025 onwards.
Alang-Gujarat stands as one of the largest ship recycling hubs globally, boasting over 140 recycling yards. The industry's contribution to the Indian economy is significant, given that it not only supports the maritime sector but also the country's steel industry, as recycled ships are a source of steel scrap. In 2022 and 2023, India dismantled approximately 2.47 million gross tonnage (GT) of ships, marking a steady rise in the country's share of global ship recycling, which grew from 27 per cent to 33 per cent over the past five years.
Challenges and Opportunities
While India's ship recycling industry has maintained steady turnover, profitability margins were impacted in FY23 and FY24 due to declining prices for steel scrap. Scrap prices dropped from INR 54,400 per tonne in April 2022 to INR 36,600 per tonne by March 2024, which put pressure on margins, although prices remain above pre-pandemic levels. Despite these challenges, the industry's outlook remains positive.
A key opportunity lies in the increased age of the global shipping fleet. According to United Nations Conference on Trade and Development (UNCTAD) data, the average age of ships in service has risen from 20.5 years in 2018 to 22.2 years in 2023, with many vessels nearing the end of their operational lives. The average lifespan of a ship is 25 years, meaning many vessels are due for decommissioning, which will lead to an increase in ships available for recycling.
Additionally, the stabilization of steel scrap prices and the expected increase in the number of aging vessels becoming obsolete position the industry for a resurgence in activity starting in 2025. Projections suggest that India will recycle between 3.8 and 4.2 million GT by 2025.
"The Indian Ship Recycling industry is expected to witness a similar recycling level in CY24 with an estimate of 2.3 to 2.6 million GT, thereafter a jump to over 3.8 to 4.2 million GT in CY25. The ship recycling industry in India is expected to grow at a compound annual growth rate (CAGR) of ~10 per cent in CY26-CY28. Cooling-off of BDI, stabilization of heavy melting scrap prices, and increase in obsolete ships in operations, suggest more ships to enter the recycling market from CY25 onwards. Countries having better infrastructure and green recycling facilities are expected to attract a larger portion of ships in future," says Sajni Shah, Assistant Director, CareEdge Ratings.
Economic Impact
India's ship-recycling industry plays a critical role in providing steel to the domestic market. With declining imports of steel scrap, the recycling of ships becomes increasingly vital for meeting the country's demand for raw materials. Furthermore, ship recycling is an environmentally sustainable practice, as it reduces the need for new steel production, thus conserving energy and natural resources.
The Indian government's efforts to promote green ship recycling through adherence to international standards such as the Hong Kong International Convention will also ensure that India remains an attractive destination for shipowners looking to recycle their vessels responsibly.
Alang-Gujarat's ship recycling industry is on the brink of significant growth, driven by the global need for ship decommissioning and the strategic importance of recycled steel. With improved infrastructure, adherence to green recycling practices and a stable supply of obsolete ships, India is well-positioned to become a global leader in ship recycling. As the industry rebounds, Alang-Gujarat is set to lead the charge, contributing not only to India's economic growth but also to the sustainable recycling movement worldwide.
