Domestic steel production to reach 4.5 million tons by mid 2019

KARACHI: Additional steel capacity of 1.7 million tons is expected to come online by mid 2019, as major players in the domestic industry are pursuing aggressive expansion plans at a cost of around Rs15 billion to cash in on the rising domestic demand.

This would augment the local steel production capacity to 4.5 million tons from the current 2.8 million tons capacity.

State Bank of Pakistan (SBP) it its annual State of Pakistan’s Economy report noted, “The domestic steel industry is benefitting from an encouraging investment and operational stimulus. However, as the new capacity comes online, the profitability of the manufacturers would depend on the overall activities in real and construction sectors going forward.”

Cumulatively, the domestic manufacturers cater around 50 percent and 60 percent of the total domestic demand for galvanised and cold rolled coil (CRC), respectively.

“High imports, even after record domestic production illustrate high demand for steel products,” SBP said.

Arsalan Ahmed at JS Global Capital said despite enjoying a high degree of protection via customs, regulatory and anti-dumping duties given to local players, dumping remains a major challenge for the flat steel industry in Pakistan. “Amid US tariff increases, local flat steel producers’ volumes have been suffering from dumped imports that are available at significantly higher discounts now than in the recent past.”

The favourable interplay between the demand and supply dynamics has incentivised the domestic industry to invest in capacity expansions and product diversification.

International Steel, for instance, increased its CRC capacity from 250,000 tons to 550,000 tons during FY15 and FY16 after converting their compact cold rolling mill to a twin-stand reversing mill.

Similarly, their galvanising capacity increased from 150,000 tons to around 460,000 tons after adding a second galvanising line. They are currently in the process of upgrading their CRC capacity from 550,000 tons to 1.0 million tons at an estimated cost of Rs5.6 billion.

Amreli Steels, meanwhile, has diversified its product base, producing billets as well as re-bars.

Their capacity for rebar production has grown from 180,000 tons to first 300,000 tons and eventually 425,000 tons and for billets from 100,000 tons to 600,000 tons. Going forward, it intends to expand the CRC capacity to 750,000 tons.

Aisha Steels is also expanding its operations vertically. It plans to produce galvanising products as well as CRC.

An investment of Rs3.9 billion would take its capacity from 220,000 tons to 450,000 tons for CRC while introducing new capacity of 250,000 tons for galvanised coils.

Lastly, Mughal Steel is investing around Rs1.0 billion to increase its total capacity from around 690,000 tons to 1.0 million tons.

Meanwhile, some players are enhancing their own electricity production capacities to cater to the growing demand.

“There are also instances where companies are investing in other industrial activities such as fragmentation and cotton yarn spinning and then intending to use the surplus profits to invest in the steel segment,” the SBP said.

The sector is also intensifying efforts to reduce import dependence on raw materials.

Though scrap imports would continue to increase, the industry players have started expanding their billet manufacturing, which was being further processed into long bar products by the manufacturers.