News / Vessel scrapping spree on the cards after EU recycling rule change

21/11/2023

Older ships are no longer being categorised as ‘waste’ for the purpose of EU law, meaning European-flagged ships can now legally be scrapped outside the EU.

Almost all vessels are scrapped in India, Pakistan or Bangladesh, but Turkey has been the only eligible scrapping destination for European shipowners, though it has few scrapyards and dry-docks sufficient to accommodate larger vessels.

Ships sold for scrap had been classified as “waste”, which prevented owners from legally exporting them to non-OECD countries, thanks to the stipulations of the Basel Convention.

EU owners traditionally got around this by selling to a cash buyer acting as a ‘shipowner-of-last-resort’, such as GMS, whose appetite for purchasing vessels for scrap was dependent on market conditions.

European owners will now be able to sell their ships to scrapyards directly, provided they are EU-approved. Currently the only yards approved outside Europe are eight in Turkey and one in the US, but the EU-approved list could expand in due course.

And the move potentially opens the floodgates for a wave of scrapping, broadly forecast by shipping analysts since the end of 2022 following the delivery of so many newbuild vessels, the subsequent overcapacity and a number of vessels expected to fall foul of the IMO’s tighter carbon emission regulations.

The sharp increase in the number of idle containerships since September suggests market fundamentals are not good, The Loadstar reported last week. The number of idle vessels increased from 1% of the global fleet to 1.75% by early October, before a marginal improvement to 1.6% in November – accountable, according to analysis by Alphaliner, to vessels leaving repair yards, rather than an improving market.

Nina Porst, director of climate, environment and safety at Danish Shipping, said the move would not only lead to more ships being scrapped, but would also help ensure an increase in standards for ship recycling yards.

“We expect a growing number of ships will be recycled over the coming years, so I am pleased that an agreement on waste shipments has been reached. Recycling of ships must always be done in a safe, responsible and environmentally sound manner, and we believe this new agreement will help secure exactly that,” said Ms Porst

However, in its weekly report, intermediary and cash-buyer GMS indicated that scrap buying would still be hampered by low US currency reserves in India and Pakistan, which left banks unamenable to lending to scrappers.

“Troubling times continue to persist across nearly all of the major ship recycling locations, as recyclers continue to bid on tonnage, all with the anticipation of a firmer start to 2024 – particularly if international steel prices are anything to go by,” said GMS.