Mikelis ship recycling markets and the impact of the hong kong convention

SHIP RECYCLING MARKETS AND THE IMPACT OF THE HONG KONG CONVENTION by Dr Nikos Mikelis Non executive director, GMS, U.A.E.

SHIPREC 2013 INTERNATIONAL CONFERENCE ON SHIP RECYCLING WORLD MARITIME UNIVERSITY, MALMO 7-9 APRIL 2013

The presentation will discuss two separate but related issues 1. Ship recycling in relation to steel making Global steel production; global contribution of the ship recycling industry to steel production; and local contribution to steel production in the five largest ship recycling countries.

2. Standards Standards of safety and environmental protection in the ship recycling industry and the impact of the Hong Kong Convention

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SHIP RECYCLING IN RELATION TO STEEL MAKING In the shipping industry it is recognised that ships are recycled for their steel and that steel making is therefore important to ship recycling.

However, there appears to be little understanding of the converse, namely the importance of ship recycling to steel making. The first part of this presentation will try to address this knowledge gap.

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There are two main processes in modern steel making: 1. production from iron ore, first of pig iron in a blast furnace, which is then refined into steel in a Basic Oxygen Furnace (BOF). Some steel scrap is also added in the refining process.

Around 70% of the world’s steel is produced through this process; and 2. production from steel scrap in an Electric Arc Furnace (EAF).

Around 30% of the world’s steel production is based on EAF. EAF is the most economic of the two methods: Making 1 tonne of steel with iron ore requires 23GJ of energy versus 7GJ when using scrap. Also EAF is environmentally friendlier as it reduces the usage of natural resources, air pollution, water pollution and generation of wastes.

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Steel making in China Contrasted to the world’s 70/30 mix (70% v 30%) of BOF and EAF in 2011, China’s mix was 90/10 Figure 1: Steel scrap for steelmaking in China Million Tonnes

800 700 600 500

626.7

573.6

500.3

489.3

683.9

400 300 200 100

68.5

72.0

83.1

88.1

91.0

2007

2008

Crude steel production 6

2009

2010

Steel scrap usage

2011

Steel making in Turkey Contrasted to the world’s 70/30 mix of BOF and EAF in 2011, Turkey’s mix was 25/75 (while India’s was 40/60) Figure 2: Steel scrap for steelmaking in Turkey Million Tonnes

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34.1

35 30 25

25.8 22.6

30.8

29.1

26.8 22.9

25.3 21.5

25.3

20 15 10 5 2007

2008

Crude steel production 7

2009

2010

Steel scrap usage

2011

There are three sources of steel scrap for steel making: 1 “own arisings” which arise internally in steel mills as rejects from melting, casting, rolling. This forms around 35% to 40% of the total steel scrap used in steel making; 2 “new steel scrap” which is generated when steel is fabricated into finished products. This forms 20% to 21% of the total; and 3 “old steel scrap” which is steel scrap from obsolete products sold to steel plants for re-melting. This includes ship scrap. It forms around 40% to 44% of the total.

The market of old steel scrap, these days, is around 225 million tonnes annually (ranging between 175 to 250 million tonnes).

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Steel scrap movements Steel scrap is traded internationally and is shipped in bulk carriers in parcels of 30,000 to 50,000 tonnes.

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The data on the largest steel scrap importing countries might give the idea that USA, EU, and Canada need to import steel scrap for their steel making industries. To get the full picture we also need to look at the data on largest steel scrap exporters:

Combining import and export data makes it clear that in 2011 USA and the EU were by far the largest net exporting steel scrap countries in the world, while Canada was the 5th largest.

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Steel scrap from ship recycling Lightweight (LDT) is the mass of the ship’s structure, propulsion and other machinery, and outfit. Steel forms around 75% to 85% of a ship’s LDT. Non ferrous metals (eg copper) are particularly valuable and although forming around 1% of a ship’s LDT, this 1% can recover up to 10% to 15% of the price paid by the recycler. Machinery from recycled ships is often reconditioned and sold for further use in maritime or land industries, or when it is beyond re-use, it is cut and sold as steel scrap.

Because the chemical composition of the steel used in shipbuilding is controlled by classification society rules and surveys, ship steel has good yield strength, ductility and impact strength. Ship steel scrap is therefore attractive for steel making.

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Re-rolling steel from ship recycling Ship recyclers can separate flat plates, and lengths of girders, beams and angle bars, from smaller irregular pieces of metal.

The later become melting scrap, while the former can either be used directly in construction, or road building, or can be heated and re-rolled into bars and rods in re-rolling mills.

Re-rollable ship’s scrap can be around 60% of a ship’s LDT. As re-rolling is simpler and much less energy demanding than melting steel scrap, re-rolling finished products have a price competitive advantage, and consequently ship recyclers can in turn command a price premium for re-rollable scrap of around 10% compared to melting steel scrap.

Re-rolling is used extensively in South Asia, but much less in China and in Turkey.

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Annual volume of recycled tonnage by recycling country

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Figure 4: LDT volumes of recycled tonnage

(millions)

12.0

LDT

14.0

6.0

10.0 8.0

4.0 2.0 0.0 2007

2008

BANGALDESH 1414

2009

CHINA

INDIA

2010

PAKISTAN

2011

2012

TURKEY

Figure 5: Estimates of ship steel scrap for melting

Million tonnes

7.0 6.0 5.0 4.0 3.0 2.0 1.0 0.0 2007

2008

BANGLADESH 15 15

CHINA

2009

INDIA

2010

PAKISTAN

2011

2012

TURKEY

For a qualitative assessment of the importance of ship recycling at the national level in the five key ship recycling countries, the following Table utilises the data for melting steel scrap shown in Figure 5, together with published data on annually imported ferrous scrap.

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Conclusion on ship recycling in context of steel production To demonstrate the relative importance the ship recycling industry has to the economy of the five recycling countries we look at the ratio of all ship steel scrap produced in each country in 2011, to that country’s apparent steel use in that year (in thousand tonnes).

China 1,800 / 649,850 Turkey 522 / 28,700 India 2,715 / 73,671 Pakistan 688 / 2,531 Bangladesh 1,495 / 2,046

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= 0.3% = 2% = 4% = 27% = 73%

SAFETY AND ENVIRONMENTAL STANDARDS The period, following from the adoption of the Hong Kong Convention until its future entry into force, is known as “the interim period�. During this period much progress has taken place already in terms of the acceptance of the Hong Kong Convention amongst the shipping and the ship recycling industries as the future single global standard for regulating the recycling of ships.

I visited on numerous occasions ship recycling facilities in Bangladesh, China, India, and Turkey and have witnessed the progress that is taking place.

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The Chinese and the Turkish ship recycling industries lead in terms of safety and environmental standards. Most facilities visited in both countries operate with good standards and do not need further expensive investment to meet the technical requirements of the Hong Kong Convention.

In both countries the recyclers and their associations appear to have realised that they can comfortably meet the technical requirements of the Convention, even if the Convention had entered into force today.

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India has also made considerable progress, especially following the Supreme Court’s judgement on the case of the “Blue Lady” in September 2007. Since then, the industry had to satisfy new domestic legislation requiring recyclers to conform to most of the requirements of the then draft ship recycling convention, on matters relating to safety, training, waste management, and environmental protection. Consequently the Convention, as adopted, does not pose any additional major technical requirements to recycling facilities in India.

As witnessed in two visits to Alang, significant improvements have taken and are taking place across the industry.

Furthermore, a number of Indian recyclers are investing in safety measures, environmental protection and social welfare that are above statutory requirements.

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As we have already discussed, the recycling industry is particularly important to the economy of Bangladesh but has attracted much criticism at home and abroad because of its low standards, high rates of serious and fatal accidents, pollution, and exploitation of workers.

The influential environmental NGO, Bangladesh Environmental Lawyers’ Association, through legal actions in the High Court, opposed the recycling industry, culminating with the effective banning by the Court of the import of ships for two lengthy periods. Eventually new regulations were established and the industry became operational again.

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Over the last five years many improvements have taken place across the ship recycling industry in Bangladesh and also in individual recycling facilities whose owners have realised that higher standards will progressively be demanded, not only by regulations but also by shipowners selling ships to them.

A lot needs still to be done, especially in the areas of waste and hazardous waste management and also on training for safety and environmental prevention. But it is a mistake not to recognise the changes that have taken place in recent years in Chittagong, as shown in the following sequence of photos.

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January 2008

January 2009

February 2010

October 2010

November 2011

Shipowners selling ships for recycling to South Asian yards are accused by activists as irresponsible dumpers who indirectly exploit poor unskilled migrant workers. For example in Bangladesh workers are said to being paid a measly $3-$4 for a very hard day’s work. Let us look at this a little closer.

In Chittagong unskilled recycling workers are currently paid between 8,000 and 10,000 Taka per month, while skilled workers are paid between 15,000 and 20,000 Taka per month.

Today this works out at $4.40 per day for the unskilled worker and $8.60 for the skilled worker. In 52 “6-working-day” weeks the unskilled worker therefore earns $1,373 while the skilled worker earns $2,683.

According to the World Bank, in 2011 the Gross Domestic Product per capita in Bangladesh was $743, so the problem is the country’s poverty, not the exploitation of recycling workers.

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Thank you for your attention

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