Dubai: As well as its leading position in the world of ship recycling GMS owns a number of ships, hence its position on Maritime CEO’s regular shipowner slot.
GMS is best known as the world’s largest cash buyer of ships for scrapping. However, it also operates a VLCC, two dry bulk vessels, and 11 containerships.
“We acquired several vessels at close to recent bottoms and hence, have seen some appreciation in both charter rates and asset values since the time of purchase,” says GMS’s founder and ceo, Dr Anil Sharma
Although GMS has ventured into newbuildings, it generally tends to focus on vintage tonnage where there is more “opportunistic buying”, says Sharma, due to the absence of leading shipowners and lack of both debt and equity players.
As for recycling, 2015 has been hectic, the annual figure likely to be the highest since 2012, which was a record high.
The charge has been led by capesizes. Some 65 capesizes have gone to scrap so far this year, with Pakistan the biggest beneficiary of this bulk clearout.
GMS internal research suggests that the number might exceed 100 vessels by the end of the year, an all time record.
Looking at the various countries associated with recycling, Sharma says profitability for recyclers remains tricky. Sharp fluctuations in currencies as well as in commodity prices, including that of finished steel, and cheap imported finished steel have weakened profit margins of recyclers. In less than a year, scrap prices have dropped by more than 25%, Sharma recounts.
“The biggest challenge facing the industry,” he reckons, “is the frightening pace at which commodity prices are falling. Since recycled steel is competing with freshly produced steel, a drop in the price of the final product due to both, falling import prices from China as well as lower input costs due to sinking iron ore – it has virtually halved since January 2014 – and oil prices, eats up recyclers’ margins.”
This is accentuated by the fact that the recycling process itself can extend to several months depending on the size of the vessel and any major movements during such period can adversely affect cash flows.