Large Steel Producers Demand Opening Of LCS
The Pakistan Association of Large Steel Producers (PALSP) has sounded an alarm, urging the State Bank of Pakistan (SBP) to take immediate 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% 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. This is the lowest January import since the last 5 years. It also represents a sharp decline of 50% compared to January 2020.
According to Wajid Bukhari, Secretary General of PALSP, “This is the worst crisis that has ever hit the steel industry as manufacturers are unable to secure raw material, entering into a forced major shutdown in the coming months.” The shipbreaking industry, which accounts for 15% of all local raw material scrap, is operating at only 5%, indicating that the entire long steel industry can only operate at 30% capacity utilization 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% of builders, holding strong reputations, 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 120,000 rupees per ton to over 200,000 rupees per ton, a record jump of 40% 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% 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 that LCs are opened as soon as possible. This is the time to act in order to prevent the situation from deteriorating further.
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