The country is facing a severe shortage of steel rebars due to the inability of the State Bank of Pakistan (SBP) to open Letters of Credit (LCs) for raw materials of the industry. The situation is being exacerbated by the recent confirmation of energy price increases and a hike in the General Sales Tax (GST) as part of the International Monetary Fund (IMF) conditions.
The Pakistan Association of Large Steel Producers (PALSP has expressed serious concerns about the prevailing state of affairs of the steel industry is grappling with a constantly intensifying situation.
According to PALSP’s Secretary General, Wajid Bukhari, “The steel sector is in the midst of an unprecedented turmoil, with massive currency depreciation, shortage of raw materials, high inflation, and increased energy prices. The situation is extremely difficult and unviable for the steel industry to survive”.
Under various heads including quarterly tariff adjustments, deferred fuel price adjustment, and imposition of a surcharge of Rs. 1 per unit on big power consumers, the government has approved a revised circular debt management plan (CDMP) where the tariff would be hiked around Rs. 7-8 per unit till August 2023.
This will have a direct inflationary impact of 7,000 Rs/ton, whereas the increase of GST from 17 percent to 18 percent would further have an impact of Rs. 3,000/ton.
Currently, the prices of Deformed rebars are around Rs. 305,000/ton, whereas inflationary pressures will warrant further price increases. According to Bukhari, the steel sector has been hit hard due to problems with the opening of LCs and the rapidly depleting foreign exchange reserves, which have resulted in a shortage of raw materials. “The manufacturers are forced to operate on very low capacities or to close their units, which has raised the cost of production and made it unviable to operate. The increase in prices of steel is also due to massive rupee devaluation and demurrage and detention charges on containers stuck at ports,” he said.
The devaluation of the PKR by 24 percent over the last two quarters, coupled with a 16 percent increase in inflation from 23.8 percent to the highest ever 27.6 percent, and finance charges raised by 13 percent from 15 percent to 17 percent have put the industry in severe crises.
Bukhari further stated, “The sudden depreciation of the rupee has caused losses worth billions of rupees to the industry, and stakeholders fear an unprecedented change in prices of imported finished and raw materials in case landed costs continue to rise. The government’s removal of the dollar cap to meet the International Monetary Fund’s demand has resulted in the Pakistani rupee falling to a historic low and the steel industry is on the brink of collapse”.
The massive devaluation of the PKR against the US dollar and the increase in petroleum prices have started to cause an inflationary impact on steel prices. The industries are forced to increase prices due to the devaluation of the local currency, uncertain economic conditions, and high inflation. The industry fears that this is just the beginning and that consumers will face even more shocking price hikes when the stuck imported containers stricken with heavy demurrage and detentions are released from the port.
The shortage of raw materials is a result of problems with the non-opening of LCs due to the rapidly depleting foreign exchange reserves and a weakening rupee. The shortage has forced many steel manufacturers to operate at very low capacities of 30-40 percent, using local scrap that is of poor quality. The cash-strapped industry is on the brink of collapse as the cost of doing business is increasing due to the massive devaluation of the rupee.
PALSP is calling for immediate action to address the situation, and Bukhari emphasized, “The steel industry is a crucial contributor to the economy as one of the highest tax-paying industries in Pakistan, and we need immediate intervention from the government to resolve this crisis to have our LC’s open effective immediately. The high-interest rates, devalued rupee, and shortage of raw materials are putting unbearable pressure on steel makers and we urge the government to address these issues and provide support to the struggling steel sector.
the situation is that we need money to run our house and pay our debts. In the time of crisis, the rule is to work harder and save further. Although Pakistani nation has little to do with this chaos but we have to pay the price. The necessity outweighs luxury. In past 3 years we have seen boom in construction industry and that time little to no steel manufacturer has paid REAL taxes and they were thieving. Now there are at least 10 dozen steel furnaces in Pakistan, they must cut down their profit and offer to consumers a JUST price else demand will wither.