Aamir Shafaat Khan assesses the value of scrap metal from ships

About eight to 10 ships per month or a hundred ships per year arrive at Gadani for demolition, most of these from Europe. On an average, 1,500,000 tonnes per year of iron and steel scrap is generated from the ship breaking industry whose total value in terms of money is Rs 6,500 million.

Around 30 ship yards are involved actively in ship breaking since its revival in 2007 when ships became available at a cheaper rate due to favourable conditions in the international market, after a gap of many years.

The ship breaking industry is a fully documented sector contributing a major segment of around 25 per cent to the overall steel requirement of the country which is approximately four million tonnes. Around 70.5 per cent of the steel weight yields re-rollable plates for re-rolling mills, whereas 29.5 per cent is scrap including other items in a ship.

“Major buyers of scrap are steel mills and furnaces who buy re-rollable and re-meltable scrap to be used as raw material for production of iron and steel products such as girders, T-Iron, and other building material,” says a ship breaker at Gadani.

Following a boom, the ship breaking industry witnessed a downfall in the past. “There are ups and down in any business. The ship breaking industry flourished during 1983-86, followed by a downfall during 1987-2009. From July 2010, the industry gained momentum and the number of ships arriving at Gadani increased.”

According to the chairman Pakistan Steel Re-Rolling Mills Association, Ali Ahmad, the re-rolling industry uses ship plates, not scrap from Gadani ship breaking yards. Last year approximately one million tonnes of ship plates from ship breaking were consumed by re-rolling mills throughout Pakistan, at the approximate price of Rs50,000 per tonne — with the total amount becoming Rs50bn per year with the consumption being approximately 85,000 tonnes per month. Out of around 450 re-rolling mills all over Pakistan, around 60 and 17 are situated in Karachi and Hub industrial estate, respectively.

“Scrap is the raw material for furnaces making ingots and continuous casted billets which in turn becomes raw material for the re-rolling industry,” said Ahmed Ali. Anyone making a small house to a mammoth building, a bridge or a dam, is our buyer just like builders, retail shop keepers and house makers. Key players in the steel industry include Amreli Steels, Dewan Steels, Nawab Steels and Razaque Steels.”

Being a major supplier of cheap yet qualitative raw material to the end consumer, the ship breaking industry plays a significant role for revenue generation for Balochistan

The industry sells ship plates to re-rolling mills, which is subjected to 3.5 per  cent withholding tax. Ship breakers by law are required to pay one per cent withholding tax at the import stage and 3.5 per cent on local supply. But in reality the industry pays only one per cent tax.

The steel industry also supplies ingots and billets to the re-rolling mills, and pays applicable taxes. Ship breakers have undue advantage due to non-payment of 3.5 percent withholding tax on supply of ship plates as compared to steel industry. “We are dismantlers and conduct our business without electricity, gas or consumption of basic utilities. We do not produce anything out of ships, only dismantle them in a transportable condition, and contribute major revenue for the government despite unfavourable government policies and red tape which creates an impediment in the smooth flow of business in an already crippled economy,” says a ship breaker.