‘Steel industry on brink of collapse’

ISLAMABAD: Pakistan’s steel industry is on the brink of collapse and now it is called upon State Bank of Pakistan (SBP) to open up LCs and address the severe shortages of rebars in the domestic market.

Through SOS, the steel industry has warned that there are 7.5 million jobs at stake if the LCs are not opened urgently. According to a statement issued here on Monday stating that the Pakistan Association of Large Steel Producers (PALSP) is sounding an alarm and calling on the State Bank of Pakistan (SBP) to take urgent action to open 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 by 40 percent from the same period last year, which was 2.5 million metric tons. In January 2023, only 220,000 metric tons of scrap were imported, the lowest January import since the last 5 years, representing a sharp decline of 50 percent compared to January 2020.

According to Wajid Bukhari, Secretary General, PALSP, “This is the worst crisis that has ever hit the steel industry as manufacturers are unable to secure raw material, entering into a force majeure shutdown in the coming months.” The shipbreaking industry, which accounts for 15 percent of all local raw material scrap, is operating at only 5 percent, indicating that the entire steel industry can only operate at 30 percent 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 material and ensure smooth operations of the steel industry,” noted Bukhari. “Imports of raw material in FY23 have more than halved compared to 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 customers who rely on it. Genuine builders who have taken billions of rupees from investors and potential tenants are still constructing their projects, yet inflationary cost escalations continue to irk the construction industry. PALSP notes that approximately 80 percent of builders, holding strong repute, are continuing their projects and honoring 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. Domestic scrap has gone from Rs120,000 per ton to over Rs200,000 per ton, a record jump of 40 percent in raw material cost in just a few weeks. PALSP urges the Ministry of Industries to implement a Scrap Recycling policy like India to increase domestic generation and bring prices down urgently.

The sharp increase in local scrap prices and lack of options to import raw material has already led to approximately 80 percent of 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 LCs are not opened urgently. PALSP urges the SBP to act on war footing and ensure LCs are opened as soon as possible. The time to act is now to prevent a further deterioration of the situation, the statement concluded.