CHITTAGONG: Abul Hossen is preparing for the arrival of dozens of ships that promise to carry his family and hundreds, if not thousands, of other Bangladeshis out of a life of poverty.

Instead of sailing to another country, however, the 45-year-old father of four will help to torch, hammer and rip the fleet into pieces of money-making scrap metal, after a court ordered Bangladesh to free up its ship breaking industry.

Maritime recycling yards in the Indian subcontinent and China could see a boom that could run until 2013 as shipowners rush to get rid of ageing vessels, driven by an oversupplied freight market, low shipping rates and high steel prices.

“The restart of ship breaking has given me a new life,” Hossen told Reuters on an oil-besmirched beach in Chittagong, home to one of the world's biggest ship recycling yards. “Had it not restarted I would have been compelled to stop sending my children to school.”

Hossen and other ship breakers earned a monthly average of 10,000 taka ($137), an income stream that vanished for the last year, forcing them to turn to other jobs such as unloading trucks and fixing cars.

Shipowners hurting

The court's decision in March to lift the ban, initially triggered by fears over the industry's impact on the environment and workers' health, comes as a relief to Hossen and his fellow workers, but shipowners are hurting.

Freight rates have fallen to two-year lows this year as the expansion of the global fleet far outstripped demand, especially in the dry bulk and oil tanker markets.

The dry bulk fleet, responsible for shipping iron ore, coal and other commodities, was expected to grow 13 percent this year to top a record 600 million deadweight tonnes in 2011 despite demand rising by just 5 to 8 percent, analysts said.

Overzealous shipowners went on a buying spree before the economic downturn two years ago and those vessels are only now arriving from the shipyards.

The oversupply problem, coupled with high prices of steel and bunker fuel, have made scrapping vessels an attractive financial alternative.

A surge in the scrapping of older ships is considered key to pulling back into balance the supply and demand fundamentals in the freight market. That could happen within the next three years if the volume of ship recycling matches expectations.

“There has got to be a massive quantity of recycling to eliminate this oversupply,” said Edward McIlvaney, managing director of EBM Shipbroking. “I can see it being bleak on the freight side, particularly for the dry bulk market, well into 2014 and possibly into 2015.”

Scrap money

Maritime firms were expected to scrap more than 30 million deadweight tonnes this year, surpassing last year's 26.6 million and the figure of 28.3 million in 2009, industry experts said.

If Bangladesh quickly ramps up its capacity, shipowners could scrap near the world's capacity of 38 million dwt, a level not seen for decades, McIlvaney said.

In the demolition market, the average dry bulk carrier traded above $520 per lightweight tonne in the Indian subcontinent, the highest since September 2008, according to the Baltic Exchange.

That translates into more than $10 million for a typical 25-year-old capesize carrier, the largest vessel in the dry bulk fleet.

“Demolition is continuing strongly in 2011 with the help of high commodity prices,” said Theodore Ntalakos, a broker with Athens-based Intermodal Shipbrokers.

“In terms of the number of vessels, we have seen almost the same demolition fixtures as we did in all of last year.”

Scrapping reached a peak of 42.58 million dwt in 1985 when Taiwan, Korea and many other countries were involved in the ship breaking business.

The industry has since undergone considerable consolidation as rising labour costs and environmental regulations forced the closure of most ship breaking yards in developed countries.

Today, four developing nations, all with an abundance of cheap labour, control more than 90 percent of the market.

“Following the court ban, Bangladesh has now become the smallest of the major ship breakers that include Pakistan, India and China,” said Amzad Hossain Chowdhury, a senior official with the Bangladesh Ship Breakers Association.

To catch up for lost time, Bangladesh's 110 ship breaking yards have already purchased dozens of vessels in the last few months with at least 35 waiting for environmental clearance to come onshore in Chittagong.

Bangladesh, the top ship recycling nation from 2004 through 2008, hopes to bring in around 300 ships by the end of next year, up from 220 in 2009 before the ban, traders said.

Before the ban, Bangladesh's ship breaking industry was worth $1.5 billion and was considered a key contributor to the overall economy, providing steel mills with half of their supplies and employing as many as 150,000 workers in one of the world's poorest countries.

The average salary for a 12-hour day of labour intensive work was around $5.50, a decent wage compared to the nearly 40 percent of Bangladeshis that live on less than $1.25 a day.

Uncertain future

Rights activists in Bangladesh say the cost to the environment and health of employees has been too high, however, with more than 1,000 workers killed on the job since 1996.

A 2003 government study found nearly 90 percent of workers suffered some form of accidental injury -- from foot injuries to serious accidents -- while working in Chittagong yards.

The World Bank in December reported widespread contamination of lead, mercury, and oil in the soil and water of Chittagong's beaches.

A court only lifted the ship breaking ban this year after industry vowed to adopt strict rules to protect workers, such as an age limit of at least 18, training and proper safety gear, and cleansing of toxic material from ships prior to arrival.

The federal court has given the industry until mid-July to prove itself or face reimposition of the ban.

"We still fear there will be more casualties in ship breaking yards, as we do not see any precautionary steps being taken," said Mohammad Ali Shaheen, head of the Chittagong-based rights group Young Power in Social Action, which says it has worked on the issue for nearly 15 years.

"We do not believe the ship breakers as they have become used to exploiting poor workers."

Activists were waging similar campaigns against ship breaking in neighbours India and Pakistan, and China.

But the pay is worth it, say Hossen and other workers, who don't want to see the ban return.

"The rights and environment activists live off the purse of others, so they don't understand the need for money, which we earn by risking our lives and investments," Hossen said.

($1=73.20 taka)