India's ship breaking industry has seen an increase in supply of ships to be scrapped due to the global downturn in the shipping industry and weak macroeconomic headwinds since 2009, according to a report published by ICRA Limited, one of India's leading financial information provider companies.
The growth of the ship breaking business in India is attributed to the country's natural geographical advantage of a high inter-tidal gradient, favorable weather conditions and low manpower costs.
According to the ICRA report, "With the outlook on international shipping freight rates being subdued over the near to medium term and large tonnage expected to come on stream post 2012, the ship breaking industry is expected to continue witnessing a steady supply of vessels for demolition over the medium term. Significant improvement in the global economic scenario resulting in a pick-up in freight rates could present a downside for the ship breaking industry."
The report underlined that Indian ship breakers have witnessed a healthy growth in operating income in recent years due to increased availability of ships for dismantling. Profitability margins in the business are inherently thin due to the low value additive and highly competitive nature of the business and have come under further pressure in the recent past owing to the steep depreciation of the rupee which has increased the cost of ship purchases.