Metal prices sway scrap yards to pay big for four junk vessels

NEWPORT NEWS

Not long ago, the U.S. Maritime Administration had to give millions of dollars to shipyards so they would accept junk vessels and scrap them.

No more.

With scrap-metal markets through the roof, those same yards now are paying the government more and more for those same junk ships, which are loaded with steel, copper, nickel and other recoverable valuables.

On Monday, the federal government announced that four more dinosaurs from the James River Reserve Fleet, or "g host f leet," have been purchased for private disposal and recycling - two for record-setting prices of more than $1.2 million each.

"This is outstanding news," said Sean T. Connaughton, who heads the Maritime Administration, a branch of the U.S. Transportation Department.

Not only is the agency saving taxpayer money this way, Connaughton said, but the James River is getting rid of an environmental threat. In addition to carrying precious metals, the obsolete ships also contain waste oils and fuels, asbestos, mercury, lead and toxic PCBs in their wiring and paint.

If the ships were to break apart in a storm, or if their aging hulls leaked, serious ecological harm could result, officials have said. One recent report suggested that if just one old vessel split open during a hurricane, a 50-mile stretch of the James could be contaminated.

Recognizing the risks, Congress set a September 2006 deadline for the Maritime Administration to dispose of all its obsolete ships at three reserve fleets in Virginia, Texas and California.

Although the agency missed its target date, it has removed more than 70 vessels from the James River since 2001. Fewer than 30 remain.

Of the four ships purchased Monday, one is heading to a local yard for disposal. Bay Bridge Enterprises in Chesapeake paid $1.2 million for the Truckee, a 9,000-ton tanker that has sat idle since 1999 at the Ghost Fleet, located off Fort Eustis in Newport News.

It was the first time the salvage yard on the Elizabeth River has had to pay for a ship, said Rebecca Robinson, a Bay Bridge executive. The company has dismantled a dozen others in recent years, each time with a federal subsidy attached.

"With the metal market the way it is, that's what we have to do to compete," Robinson said. "You have to pay to get ships."

The three other vessels are going to yards in south Texas. The Kalamazoo, another old tanker, was sold for $1.4 million to Esco Marine Inc. in Brownsville, Tex.

Esco Marine also bought the Nitro, a former Navy ammunition ship, for $446,000. The fourth, the Rigel, will be laid to rest at All-Star Metals, another Brownsville yard, which paid $469,000 for the retired freighter.

A year ago, scrap steel was going for less than $350 per ton, according to various Internet sites that track such sales. This month, the average price was $584 per ton, which was down slightly from the June.

The demand for cheaper, recycled steel is driving the market boom, mostly because of the growing economies in India and China, analysts have said.

Bay Bridge Enterprises makes most of its profit from scrap steel, copper and other metals, Robinson said.

Asked whether the yard has more room for reserve ships, Robinson did not blink.

"Oh yeah," she said. "We're a shipbreaker; we'll make room. Especially in these markets."

With the private sector now paying the government for obsolete ships, the amount of taxpayer money being set aside for ship disposal is decreasing.

Congress appropriated $17 million for the Maritime Administration's program this fiscal year, which ends in September. President Bush has asked for $18 million in his next budget, though a Senate committee trimmed that amount to $15 million earlier this month, said Susan Clark, an agency spokeswoman in Washington.

Scott Harper, (757) 446-22340, scott.harper@pilotonline.com