Steel manufacturers call for urgent steps as production plummets to 30 per cent

KARACHI: The Pakistan Association of Large Steel Producers (PALSP) is sounding an alarm and calling on the State Bank of Pakistan (SBP) to take immediate action to open letters of credit (LCs) and address the severe shortage of rebars in the domestic market.

The situation has reached a critical level, with imports for the first seven months of FY23 down 40 per cent, compared with the same period of the last year, which was 2.5 million tonnes.

In January 2023, only 220,000 tonnes of scrap was imported, the lowest January import since the last five years, representing a sharp decline of 50 per cent, compared with January 2020.
Wajid Bukhari, secretary general of PALSP, said this is the worst crisis that has ever hit the steel industry.

“The manufacturers are unable to secure raw materials, entering into a force majeure shutdown in the coming months,” he added.

The shipbreaking industry, which accounts for 15 per cent of all the local raw materials scrap, is operating at only 5 per cent, indicating that the entire long steel industry can only operate at 30 per cent capacity utilisation levels and the situation is expected to worsen in the coming months.

“The shortage of rebars in the domestic market is a major concern for the steel industry and the customers who rely on it. It is essential that the SBP takes immediate action to open LCs to address the severe shortage of raw materials and ensure smooth operations of the steel industry,” Bukhari noted.

“The imports of raw materials in FY23 have more than halved, compared with the last year’s figures, which is alarming and is contributing to the shortage of rebars in the market. The situation is only going to get worse if the SBP does not act quickly.”

Not only is the shortage causing problems for the steel industry but it is also impacting the customers who rely on it. Genuine builders who have taken billions of rupees from the investors and potential tenants are still constructing their projects, yet inflationary cost escalations continue to irk the construction industry.

PALSP notes that approximately 80 per cent of the builders, holding strong repute, are continuing their projects and honouring their commitments, as they had booked raw materials in advance from the rebar manufacturers with the income received during the launch of their projects.

However, the actual problem will arise when the rebar manufacturers shut down in the coming months due to zero availability.

Further price increases in the coming weeks cannot be ruled out due to the shortage. The domestic scrap has gone up from Rs120,000/tonne to over Rs200,000/tonne, a record jump of 40 per cent in the raw materials cost in just a few weeks.

PALSP urges the Ministry of Industries to implement a Scrap Recycling Policy just like India to increase the domestic generation and bring down the prices.

The sharp increase in the local scrap prices and the lack of options to import raw materials had already led to approximately 80 per cent of the small to medium-sized mills shutting down, suggesting a massive wave of unemployment.

Additionally, 45 allied industries are related to the steel industry and there will be 7.5 million jobs at stake if the LCs are not opened on an urgent basis.

PALSP urges the SBP to act on war footings and ensure the LCs are opened as soon as possible. The time to act is now to prevent a further deterioration in the situation.