Steel producers reject Abad’s irresponsible statements

LAHORE: The Pakistan Association of Large Steel Producers (PALSP) has rejected the irresponsible statements made by the Association of Builders and Developers (Abad) against the steel sector, dubbing increase in the prices of rebars in the country as a conspiracy against the prime minister’s Naya Pakistan Housing project.

The Naya Pakistan Housing Scheme and the set of incentives given to the construction industry were visionary initiatives taken by the premier to provide affordable housing and churn the economy, it said.

However, the biggest barrier to affordable housing are the real estate builders and developers themselves. The prices of homes, apartments and office spaces, particularly in urban areas, have increased significantly over the last few years due to an increasing appetite of real estate developers for high margins, it said.

With some of the highest net profit and returns on equity margins across the industries, the government should issue strict regulations to fix the pricing of various categories of the real estate projects whether it be residential or commercial development.

Since there is very little transparency in the real estate development sector, the government needs to audit the income tax contribution of such lucrative ventures. After a huge amnesty given to the builders and developers to whiten the black money, further oversight from the government needs to ensure that unaccounted and undeclared wealth (black money) is not being used, moving forward, the steel producers said.

The year 2021 witnessed an extraordinary increase in the prices of rebars worldwide as a result of shortage of raw materials/scrap due to the Covid 19-related factors, as well as due to an increase in the demand for steel products globally.

However, despite the fact that the cost of input increased drastically, still, the steel sector of Pakistan has been providing rebars at a price, which is less or in some cases equal to the countries such as China, Turkey, the US, the UK and the CIS states who are leading steel producers.

The steel sector has been absorbing the increasing cost of inputs by reducing its net margins that hover around 4 per cent to 5 per cent recently.

In the FY2018/20, the major players declared losses and many smaller ones went out of business. The year 2021 provided a little relief due to an increase in the demand for steel; however, still the steel sector is fighting for its survival.

PALSP represents the documented and transparent steel sector, comprising the most credible players of the steel sector. Over the period ranging from August 2020 to August 2021, scrap prices (C&F Karachi) had shot up from $299 to $530, accounting for a 79 per cent increase in the raw materials cost.

The electricity cost, a major input for the steel producers, over the same period also jumped 37 per cent from Rs13 to Rs20. Similarly, regasified liquefied natural gas (RLNG) has increased 90 per cent over the last year and ferro alloys, also a raw material used for steel making, has jumped 58 per cent.

All such factors have forced the steel manufacturers across the world to increase prices, while absorbing some of the impact that is apparent in the meager industry margins of 4 per cent to 5 per cent.

However, the good news is that the sudden hike in raw materials prices is a sort of bubble, created by supply chain disruptions that create shortage of metal scrap in the global market. As the global trade starts to recover and make its way back to a normal level of efficiency, the supply side of the raw material could once again come back to the pre-Covid levels, resulting in a normalisation of prices.

Owing to the fragmented and highly competitive nature of the steel industry in Pakistan, having over 400 steel units re-rolling primarily steel bars, the normalisation of raw materials prices will automatically be translated and domestic steel prices will come down.

Looking to the future, if the steel demand is to grow at 8 per cent/annum, Pakistan will need to double steel production in the next 10 years to keep pace with a growing economy. However, with such meager profitability and an array of tariff and tax anomalies, who would like to invest in the steel sector?

The government must create a long-term roadmap that provides a facilitating and progressive environment for investment in the steel sector, which is the backbone of the country’s economy.

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