Box 2.1:
Developments in the Steel Sector of Pakistan

Pakistan’s steel manufacturers are undertaking significant investment to expand operational capacity and enhance product quality. This is mainly due to continuous rise in domestic demand. The industry has recovered from a contractionary phase that started with the closure of operations of Pakistan Steel Mills in FY15, and posted an encouraging growth of over 20 percent during FY17 and FY18.

Steel products are generally classified into four broad categories: long steel products (re-rolled bars); flat steel products such as Hot Rolled Coils (HRC), Cold Rolled Coils (CRC), and Hot Dipped Galvanized Coils (HDGC); piped products for use in road construction, etc.; and semi-finished products that are sold to other manufacturers or consumed internally for processing into finished products. Table 2.1.1 lists the major private sector steel manufacturers and details their products. Cumulatively, the domestic manufacturers cater around 50 and 60 percent of the total domestic demand for galvanized and CRC, respectively. High imports, even after record domestic production, illustrate high demand for steel products. On the demand side, four factors stand out. First, there is now a dynamic customer base for steel commodities in automotive, defense, transportation and appliances sectors. Second, an increase in overall industrial activities has created further room, as most of the construction-allied industries are investing heavily in expansions. Third, population surge has created a housing shortage and the private housing projects are gearing up to cater to this shortfall. Fourth, higher public spending and CPEC related infrastructure undertakings are fueling further demand for steel. Going forward, these four developments would continue to increase overall demand for steel.

From the supply side, the domestic manufacturers face tough competition from imported finished products, particularly from China. Competitive in terms of both price and quality, the imported products are especially impacting sales of domestic small players, who are unable to compete due to high costs of doing business and double taxation across the industry. Recently, the industry has had some respite after the government imposed anti-dumping duty (ADD) on top of already imposed regulatory duties on finished steel products (Figure 2.2.1).

This favorable interplay between the demand and supply dynamics has incentivized the domestic industry to invest in capacity expansions and product diversification. International Steel, for instance, increased its CRC capacity from 250,000 to 550,000 during FY15 and FY16 after converting their compact cold rolling mill to a twin-stand reversing mill. Similarly, their galvanizing capacity increased from 150,000 tons to around 460,000 tons after adding a second galvanizing 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 Rs 5.6 billion. Amreli Steels, meanwhile, has diversified its product base, producing billets as well as rebars. Their capacity for rebor production has grown from 180,000 to first 300,000 and eventually 425,000 and for billets from 100,000 to 600,000. Going forward, it intends to expand the CRC capacity to 750,000.

Aisha Steels is also vertically expanding its operations. It plans to produce galvanizing products as well as CRC. An investment of Rs 3.9 billion would take its capacity from 220,000 to 450,000 for CRC while introducing new capacity of 250,000 for galvanized coils. Lastly, Mughal Steel is investing around Rs 1 billion to increase its total capacity from around 690,000 to 1 million tons.

The industry is also focusing on extensive BMR activities to achieve efficiency gains. For example, Aisha Steels has installed a roll grinder procured from Germany to improve the thin gauge CRC quality, while an electrostatic oiler has also been installed to strengthen the products’ resistance to corrosion. Amreli Steels also has plans to start using the multi-slit rolling technology acquired through Primetals, a leading global engineering and plant construction company. Meanwhile, some players are enhancing their own electricity production capacities to cater to the growing demand. Mughal Iron and Steel, for instance, has restarted operations of 9.3 MW gas-fired captive power plant. It has obtained approval for further captive power generation from SNGPL for 2.8 MMCFD of gas, up from 1.8 MMCFD.

In the piped steel segment, a key industry player is working overtime to cash in on the rising 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 fabrication unit of Crescent Steel manufactures and supplies products as diverse as cane-shredders, centrifugal machines, stainless steel spray clusters, multi-jet condensers, and high voltage condenser tanks, etc.

The sector is also intensifying efforts to reduce import dependence on raw materials. While scrap imports would continue to increase (given that the domestic scrap materials do not yield quality products), the industry players have started expanding their billet manufacturing, which is further processed into long bar products by the manufacturers. Overall, the domestic steel industry is benefiting 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.

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