Ed­i­tor’s Desk

Enterprise - - Contents -

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.

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