THE import of metal scrap has doubled in value over the last four years. In the absence of a visible source of increase in demand, businessmen suspect smuggling in the garb of ‘lawful’ trading of duty-free scrap.

“It is an open secret that new and reconditioned expensive components and spare parts [condensers, compressors, machinery etc.], used in home appliances and by the auto industry, are dumped in the Pakistani market by metal scrap importers,” an executive at a home appliance dealer confided.

According to latest State Bank data on trade, the import of iron and steel scrap in FY12 was $423.08m. It increased to $499.14m in FY13 and to $602.28 in FY14. In July-August 2014, these imports were reported to be $143.3m, and are expected to cross $800m by the end of FY15.

The question arises, where all this imported is scrap going in a country that is placed at the bottom of the global index of per capita steel consumption. Pakistan’s contribution in total global steel production of 1.5bn tonnes in 2012 was 4.7m tonnes, against India’s 77.6m tonnes and China’s 716.5m tonnes.

Market watchers say part of the hike in scrap imports is due to rising international prices. But some add that influential lobbies are dumping duty-free scrap in the market at the cost of domestic steel manufacturing

The per capita steel consumption in Pakistan is 26.2kg, against the global average of around 200kg.

Some senior business leaders are critical of the official economic policy, which they see tilted in favour of trade, at the cost of industry. In the case of scrap import, they worded their comments carefully.

Khalid Tawab, former FPCCI vice president and MD of F. Rabbi Steel, partly attributed the rise in the value of scrap import to the increasing international price of the product.

“We can’t rule out the possibility of smuggling, but at least 30pc of the increase in the value of imported scrap is because of price hike. The fall in local production because of PSM’s problems has also increased the demand for imported scrap.”

He said these factors, however, can’t justify a 100pc increase in the value of imported scrap in the referred period.

“Money begets money,” said another market watcher, hinting at the involvement of well-connected individuals in the booming trade.

The steel makers suspect scrap importers lobby behind the government’s reluctance to support steel-making units in the country.

“It is hard to prove, but circumstantial evidence points to a powerful lobby of traders whose interest is in direct conflict with steel manufacturers.

“The lobby vetoes any policy they consider harmful to their business interest. Take the case of Tawairqi Steel Mills, which cleared a 100pc capacity test run in 2013. But it is now sitting idle. Its future hangs in the balance and the danger of Korean and Saudi sponsors pulling out is real.

“All relevant people in Islamabad are aware of the sensitivity of the issue in the context of foreign direct investment, but they appear helpless in ironing out the irritants and are sitting on the fence, watching a valuable project meet an unnatural death,” an irate steelmaker aired his opinion.

“Who would like to slay the hen that lays the golden eggs? If steel production rose, this window that smugglers-pretending-to-be-traders use will not be easily accessible,” he stressed his position.

When attention was drawn towards the companies that aspire to buy metal scrap on TradeKey, a B2B online marketplace, some businessmen laughed it off.

About 300 companies on the website have expressed interest in buying metal scrap. Some 70pc of such companies belonged to the industrial belt of Punjab, including Lahore, Gujranwala, Sialkot, Faisalabad, Daska, Multan, Sargodha and Haripur, besides Karachi and Peshawar.

“I think most of these companies are paper organisations registered in different small cities to dodge the taxmen,” a senior businessman said.

Azhar, a cricket enthusiast, is managing two home appliance shops with his brothers in Karachi. He told this scribe some time back that all companies — Orient, Dawlance, Haier, Mitsubishi, LG, Pel, etc. — buy AC compressors from the same source, and the difference between locally assembled brands is, therefore, marginal.

Attempts to reach FBR’s customs member Nisar Mehmud proved futile. A key member of Prime Minister Nawaz Sharif’s economic team, Privatization Commission Chairman Muhammad Zubair, picked up the call in London. He sounded hopeful about the future of the sitting government, but the line unfortunately dropped on the mention of the possibility of a metal scrap import scam.

FPCCI President Zakaria Usman gave a candid response when reached over phone in Karachi. He endorsed the perception that there is more to metal scrap imports than simple trading.

“First, there were bonus vouchers, under-invoicing, misdeclaration, textile quotas, flying rebate invoices and adjustments, and now certain import products are zero-rated. The traders’ mafia has grown in both size and influence. They dodge the public exchequer and erode local manufacturing space by dumping duty-free products in the local market,” he complained.

Published in Dawn, Economic & Business, October 13th, 2014