Steel prices to rise by Rs8,000-Rs10,000/tonne due to electricity price hike, says PALSP

ISLAMABAD: Pakistan’s steel industry is facing a crisis as soaring electricity and petrol prices threaten to wipe out its profits and put millions of jobs at risk, an industry body said on Friday.

The Pakistan Association of Large Steel Producers (PALSP) said that it strongly protested against the “massive increase” in the cost of production, which had made the industry uncompetitive and unsustainable.

Wajid Bukhari, the Secretary General of the Pakistan Association of Large Steel Producers (PALSP), said the colossal surge in the cost of key inputs is a betrayal to the industry. The recent price hikes in electricity and petrol will not only escalate production costs but also push the industry to the brink of closure, jeopardizing millions of jobs.

"The sharp increase in electricity tariff and petrol prices will deliver another heavy blow to an industry already reeling from inflation, soaring financial charges, and relentless fuel price hikes," said Bukhari. "The massive currency depreciation has exacerbated the financial crunch, and the recent electricity price surge is a further blow that we cannot sustain."

Over the past year, electricity prices have surged by over 78 percent, from Rs28/unit (with taxes) in June 2022 to approximately Rs50/unit (with taxes) in July 2023. The hike of Rs7.5/unit, constituting a 34 percent increase in the basic tariff, coupled with frequent upward adjustments in electricity rates, will cripple the steel industry, which heavily relies on power.

As one of the major power consumers, the steel industry will be burdened by the rapid increase in electricity costs, which account for nearly 50 percent of the total production expenses. The surge in power rates will further inflate production costs, leading to an inevitable increase in steel product prices.

"The consequences of this drastic increase in electricity tariffs are grave," Bukhari said. "We anticipate an additional Rs8,000 to Rs10,000 per ton increase in steel prices due to the hefty electricity bill. When combined with the impact of financial charges, transportation costs, and currency depreciation, the overall rise in steel prices may range from Rs15,000 to Rs18,000 per ton."

PALSP highlights a worrying trend, where the relentless surge in petrol and power prices continues without any respite. Compared to other countries, energy tariffs in Pakistan are the highest in the world, severely throttling the domestic steel industry. Electricity prices in Pakistan are nearly 55 percent higher than Vietnam, 45 percent higher than Bangladesh, 41 percent higher than China, 29 percent higher than Ukraine, and 21 percent higher than India.

"The exorbitant energy tariffs in Pakistan are rendering the steel industry uncompetitive and inhibiting its growth potential," said Bukhari. "The disparity in energy costs hampers our ability to compete internationally and poses a serious threat to the future of the steel sector."

PALSP urges the government to address these pressing concerns immediately to prevent far-reaching consequences that may hinder the country's progress and impede its ability to meet its needs and aspirations.