Manufacturers of quality steel bars increased their prices by up to Rs3,000 per tonne in November on the back of rising raw material costs in world markets and growing strength of the rupee against the dollar.
The price increase came at a time when economic activities worth Rs1 trillion and Rs100 billion had been generated in Punjab and Khyber Pakhtunkhwa, respectively, by way of housing and construction projects.
On Friday, Prime Minister Imran Khan was informed in a meeting of the National Coordination Committee on Housing Construction and Development that 6,000 apartments would be constructed in Karachi under a project called Pakistan Quarters. In the first phase, work would start on 700 residential units at a cost of Rs4 billion over the next three months.
Another meeting on the Karachi Transformation Plan (KTP) presided over by the premier was informed that more than 100 projects worth Rs1.1 trillion have been planned under the programme.
Stakeholders demand removal of regulatory and customs duties to offset the rising costs of raw materials
Mughal Iron and Steel Industries Chief Operating Officer Shakeel Ahmed said the company pushed up the price of good quality steel bars by Rs3,000 per tonne in November to Rs114,500-115,000 per tonne.
Ruling out the possibility of increasing the price of long-steel product to cash in on the rising demand in the northern areas owing to construction activities, he said raw material prices have risen to $370 per tonne from $330 per tonne in the last one month. It happened due to various reasons like port congestion and the fear of further lockdowns in world markets.
The management of Mughal Iron and Steel Industries had informed analysts of brokerage houses that the Naya Pakistan Housing Programme (NPHP) can potentially create 6-7m tonnes demand for long steel assuming the government builds 50 per cent of the promised houses.
The company views future demand to come from the China-Pakistan Economic Corridor (CPEC) and the five hydro dam projects. It has already won a contract for three dams. It estimates steel demand of 350,000 tonnes from Bhasha Dam and 250,000 tonnes from Mohmand Dam in the first phase.
Razaque Steels Managing Director Irshad Mowjee, who also serves as general secretary of the National Steel Advisory Council (NSAC), said his company has increased the price by Rs3,000 on two kinds of quality steel bars, which now cost Rs111,500 and Rs116,500 per tonne.
Shredded scrap prices in world markets have risen due to lockdowns in Europe and the United States. The supply of scrap has become scarce, resulting in a hike in international prices. Yards do not have materials and the incoming supply is limited, resulting in the prices going up by $40 per tonne within the last three weeks, he added.
Fearing a further increase in steel bar prices if scrap rates do not come down, he suggested that the regulatory duty on raw materials should be abolished. The duty is not justified on raw materials used in a basic industry as industrialisation is the government’s top priority.
If it is not removed, it will affect the viability of CPEC projects. Cost overruns will happen as steel is a major component, he said.
Mr Mowjee urged the government to remove the additional customs duty of 2pc as competing raw materials are exempted from it. At present, the incidence of tax is around Rs23,000 per tonne, which needs to be reduced, he added.
Shredded scrap is used for manufacturing good quality bars for infrastructure projects. Increasing prices will affect the viability of CPEC projects, he said.
Gadani supplies ship plates that are used as raw material for lower-quality steel bars. Their prices have not increased, thus making bars made from steel billets uncompetitive. This may cause a drop in the production of good quality bars for infrastructure projects, he said.
Confusion, however, persists in the market as iron and steel scrap prices had fallen in July-October to $342 per tonne from $391 per tonne as per the Pakistan Bureau of Statistics (PBS). Total iron and steel scrap imports in the last four months stood at 1.87m tonnes costing $642m as opposed to 1.35m tonnes valuing $531m in the same period of last fiscal year.
Iron and steel scrap imports in October stood at 458,840 tonnes valuing $157m compared to 526,326 tonnes amounting to $180m in September. In both the months, the per-tonne average price comes to $342.
Amreli Steels Head of Government Institutional Sales Zeeshan Ali said his company raised steel bar price to Rs118,500 from Rs117,000 per unit in June while it was Rs116,000 in April.
He was of the view that the price of shredded steel scrap (raw material for making steel bars) rose to $360-370 per tonne in November in Europe and Dubai from $342 per tonne in October.
When asked about the low cost of imports owing to rupee appreciation against the dollar, he said the rupee had achieved paltry strength against the greenback between October and November. Its effect was diluted by the hike in raw material prices in the world markets.
On booming construction activities, he said there have been no construction activities in public-sector projects in Sindh and Balochistan. Only private-sector high-rises and housing projects are being launched.
He said construction activities were going on in both private and public projects in Punjab and Khyber Pakhtunkhwa.
According to Sherman Securities, the current capacity utilisation of Amreli Steels is around 55pc. The management is targeting 55-60pc capacity utilisation for 2020-21. As per the company’s management, assuming the cement-to-rebar ratio of around nine to one, if cement demand continues its trajectory and registers growth in double digits, similar increase can be expected in rebar demand.
Association of Builders and Developers (ABAD) former chairman Hassan Bakhshi said steel bars represent 40pc of the total cost in high-rise projects while 20-25pc share in housing projects.
The increase of Rs3,000 per tonne will raise the project cost of a high-rise project by 1.5-2pc while that of a housing project will go up by 1pc, he said.
About ongoing ad campaigns for high-rise and mid-rise projects, Mr Bakhshi said these public sale projects had been approved four months back by the Sindh government. “Only 19 public sale projects have been given a green signal in the last few months by the Sindh government.”
Published in Dawn, The Business and Finance Weekly, November 30th, 2020