Chinese shipbreakers will sink deeper into the red in the second half of the year, after domestic scrap prices plunged to record lows, the China National Shiprecycling Association said Tuesday.

This was after members of the body piled up losses of Yuan 200 million ($32.5 million) in the first half of the year.

The number of vessels broken in the second half will also shrink from the 136 in the first six months, a figure equivalent to 1.1 million light displacement tons, or 4.9 million dwt, an association official told Platts, declining to disclose estimates for the second half.

Spot prices of heavy melting scrap 6mm thick and above fell to Yuan 1,920/mt delivered Zhangjiangang, Jiangsu, on September 19, a record low since Platts started assessing prices in March 2005. Prices hovered at that level for about five weeks.

Shipbreakers said they were experiencing tough times, with some of the smaller ones having closed down this year.

“We have to continue with business even though we’re making losses this year,” said a source at a state-owned shipbreaking company in the northeastern province of Liaoning. State-owned companies often continue operating regardless of profitability, as they tend to be considered “too big to fail.”

Two other bigger enterprises in Guangdong province in the south also confirmed entering into losses this year, due to tanking scrap prices, as did one other in Jiangsu in the east. They did not rule out exiting shipbreaking if the situation continued.

DOMESTIC VESSEL VOLUMES JUMP

Chinese shipbreakers bought 564,000 light displacement tons worth of vessels domestically in the first six months, a fivefold jump year on year, after the government introduced incentives.

The volume of obsolete vessels imported was meanwhile was 556,000 light displacement tons, down 44% year on year, according to data from the association.

In December last year, China introduced a subsidy for the breaking of old transport ships and single-hulled tankers in advance, awarding shipowners Yuan 750/gross mt of ships they send for recycling.

Current offers for shipbreaking scrap stood at Yuan 2,100/mt delivered to Zhajiagang including value-added tax, the shipbreaking source in Liaoning said.

This compares with the price of HMS 6mm and above at Yuan 1,970/mt delivered to Zhangjiagang, according to Platts assessment Friday.

Shipbreaking scrap 6 mm and above thick typically commands a premium of Yuan 100-200/mt to HMS of the same thickness.