The steel industry is considered to be the backbone of any country today. Modern society has a direct correlation with industrial development and the steel industry is considered to be a basic element given its utility in all industrial processes and sectors ranging from infrastructure, construction, automobiles, transportation and home appliances. The demand for steel follows a cyclical trend and correlates directly with the industrial conditions prevalent locally and globally.
Steel products are generally classified into 4 broad categories: Long steel products, flat steel products, semi-finished products and tubes. The long products include re-enforcing bars, structural sections, wire rods and forgings. Flat products include Hot Rolled Coil (HRC), Cold Rolled Coil (CRC), Hot Dipped Galvanized Coil (HDGC) and Colour Coated Coils. Pipes include seamless pipes and welded pipes. The products which are classified as semi-finished or unfinished are generally not sold to end-consumers and are instead further processed into finished products.
World steel production over the decade has increased significantly from 1,149m tons in 2005, to 1,621m tons in 2015. According to World Steel Association’s list of top 10 steel producing countries, China features as the largest steel producing country which generated 804m tons equivalent to roughly 49.6% of the total global steel production. Other major players include Japan (105m tons), India (89m tons), United States (79m tons) and Russia (71m tons). It is pertinent to note that India overtook the United States as the third largest steel producer during 2015.
The overall global outlook for steel sector has weakened, reflecting not only cyclical factors such as the slowdown in world economic growth but also growing structural challenges such as excess capacity. Chinese steel production overcapacity overall has resulted in declining steel prices and eroding profitability for steel makers globally. Another factor that has caused increasing volatility in steel prices was the aggressive trading of steel futures in China, as a result which, the HRC prices increased by more than $150/ton.
In the recent times, however, the global steel industry has shown some signs of recovery, further to the China Iron & Steel Association’s (CISA) announcement regarding curtailment of steel production in China. The stability is also being reflected in terms of higher steel prices. According to Bloomberg, it has been estimated that a 3% decline in Chinese steel production is expected as the Chinese authorities are serious about curtailing steel production and are also planning to reduce stimulus measures to the Chinese carbon steel industry.
European manufacturers were forced to cut jobs due to falling prices and demand for the material amid an influx of cheap imports from Asia. The EU has agreed to impose import duties of between 13.2% and 22.6% on Chinese hot-rolled steel, which is used in pipelines and gas containers, and 65.1% and 73.7% on heavy plates, which are used in civil engineering projects. Imposition of tariffs on Chinese steel is further likely to discourage steel production and imports from China.
Demand for steel in Pakistan is estimated at 4.4m tons and has seen a rising trend over the last few years due to strong growth in construction activity. As per the State Bank of Pakistan, the domestic steel production grew by 35.4 percent which is the highest level in five years. Apart from residential and infrastructure projects, the auto sector has also made a strong contribution to demand for different steel products. Pakistan is still amongst the lowest per capita consumers of steel at 29.4kg/capita which is well below the world average approximately and indicates the immense potential for growth in the domestic steel manufacturing and processing industry.
The Pakistani steel industry was once dominated by Pakistan Steel Mills Corporation Limited (PSMCL) (which has a production capacity of 1.1m tons) but it is now lying defunct in the backdrop of financial and economic losses it has suffered over the years. The company has $3.5b in debt and accumulated losses, and has not been in production since June 2015. The government is actively looking for a buyer in order to revive PSMCL as a loss making entity. It has already injected $2 billion into PSMCL since a failed selloff in 2006 but has not succeeded in finding a buyer.
PSMCL has the capacity to expand its production to 3 million tons of cold and hot-rolled steel annually, against current capacity of 1.1 million tons (at which rate it could turn out to be profitable). However, political meddling, lack of investment in machinery and cheaper Chinese imports have left PSMCL weakened. Other individual players in the Pakistani steel industry have seen significant growth in recent years including Agha Steel, which started production in 2013 and produced 150,000 tons in 2015, Amreli Steels, which had a successful IPO in October 2015 when it produced 180,000 tons. It aimed to reach 500,000 tons in 2017. International Steel Limited (a subsidiary of International Industries Limited and a public listed company) sold more than 364,000 tons of prime products and has an annual production capacity of 550,000.
The steel industry in Pakistan is an important sector set to fuel growth is the China Pakistan Economic Corridor (CPEC) infrastructure project which is expected to increase the demand for steel products significantly. As per Pakistan’s Steel Re-Rolling Mills Association (PSRMA), the start of mega development schemes and power projects under (CPEC) will boost the annual demand for steel products by more than 30% to 6 million tons from 4m tons per year.