The Reflection of Ship Demolition Prices to Construction Costs in Turkey

Abstract

The ship demolition sector is one of the major suppliers of the steel market, even though its share in the total scrap market is very small. As the sector is a supplier of the steel market, it is inevitable that the price changes will be reflected in the construction sector, which is one of the largest steel customers. In this context, it is aimed in this study to determine whether the changes in demolition prices of Turkey, which is one of the main ship demolition locations in the world, have an effect on the construction costs in the country. In order to investigate possible relationships, Turkish demolition prices and Construction Cost Index (CCI) variables are used. The dataset covers the dates between January 2015 and December 2018, and consists of 48 monthly observations. Asymmetric causality test is used to determine the causal relationship between the variables by separating the shocks they contain as positive and negative. The econometric relationship is analyzed with both the USD currency price offered by Turkish demolition businesses and the corresponding TL currency prices in order to diversify the results. According to the results, causality relation from positive shocks in USD based demolition prices to the positive shocks in construction costs index is determined. In addition, there are causalities from positive shocks in TL based demolition prices to the positive shocks in construction cost index, and from negative shocks in demolition prices to the negative shocks in the index. This situation shows that the foreign exchange rates also play an important role in shaping the costs of the construction sector.

Hierarchical modelling of volatility spillovers in ship demolition markets

“…This has also been empirically tested and confirmed by Kagkarakis, Merikas and Merika [2016] and Tunç and Açık [2019]. Due to this close relationship, ship demolition prices can also affect construction costs, as investigated by Açık and Baran [2019]. However, this effect may be due to its close relationship with the steel market rather than the direct effect of the ship demolition price.…”

Hierarchical Flow Among Four Shipping Markets: An Integrated Approach for Capesize Shipping Markets

“…Mikelis (2007) also evaluated that this relationship could be positive by statistical analysis. Undoubtedly, the price of demolition should be also related to variables other than maritime, because the steel from demolition is used as input to some sectors, such as the construction sector (Açık and Baran, 2019). Kagkarakis et al (2016) examined the relationship between ship demolition prices and global scrap prices and found that global scrap prices are decisive for ship demolition prices since their small share in the global steel industry.…”

Gemi Sahiplerinin Filo Kapasitesi Ayarlama Kararlarında Faiz Oranlarının Rolü

“…One of the most important customers of the steel sector is the construction sector, which is likely to be affected by the ship demolition market. In a study conducted on this research question, the impact of Turkish ship demolition prices on construction costs in Turkey examined (Açık and Baran, 2019) and it was found that positive shocks in ship demolition prices cause positive shock in the construction costs. This suggests that the ship demolition market may be effective in the costs of steel users, albeit its small size in the market.…”