ISLAMABAD: The Pakistan Association of Large Steel Producers (PALSP) has warned that the steel industry, a cornerstone of the national economy, is facing a severe crisis. Numerous steel mills have already closed, while the few that remain operational are running at just 20-30% capacity. The sector is grappling with unsustainable production costs and plummeting demand.
Industry leaders caution that without immediate and decisive government intervention, the sector risks complete collapse, putting millions of livelihoods at stake.
A major factor behind the crisis is the soaring cost of electricity, which has reached Rs 52.39 per unit—the highest in the region. This has disproportionately impacted energy-intensive industries like steel, where electricity is a primary input.
PALSP has criticized delays in implementing the promised “wheeling” mechanism, which would allow manufacturers to purchase cheaper electricity directly from independent producers. The association has urged the government to lower electricity tariffs for the steel sector, noting that its energy demand of 4-6 million tons annually could utilize approximately 4.8 billion units of idle power. This measure, they argue, would boost capacity utilization and reduce payments to independent power producers (IPPs) for unused electricity.
“The steel industry is collapsing under the weight of unsustainable policies,” said PALSP Secretary General Wajid Bukhari. “Mills are shutting down not due to mismanagement but because of conditions beyond their control. Skyrocketing electricity costs, unaffordable borrowing rates, and dwindling demand have pushed manufacturers to the brink. Without immediate relief, this sector, which supports millions of jobs and over 45 downstream industries, will be lost.”
The financial strain has been exacerbated by broader economic challenges. The sharp devaluation of the Pakistani Rupee has nearly doubled working capital requirements, leaving manufacturers unable to sustain operations or maintain inventory. While the recent reduction in interest rates to 15% has offered some relief, manufacturers argue that single-digit rates are essential for recovery, as record-high borrowing costs of up to 25% had rendered credit inaccessible.
Demand for steel has also plunged due to a sharp decline in public sector development program (PSDP) funding. Infrastructure projects, which consume 60% of local steel output, have come to a near standstill. Private construction activity has also slowed drastically, leaving manufacturers with unsold inventories and mounting losses.
The broader economic slowdown is evident in large-scale manufacturing (LSM), which contracted by 0.76% in the first quarter of FY25. This marks the third consecutive year of negative first-quarter growth, a trend not seen in over two decades, underscoring the depth of the crisis.
Foreign investment in the sector has also been affected, with a major Chinese steel producer recently abandoning plans to expand operations in Pakistan. The company cited exorbitant energy costs, excessive taxation, and high borrowing rates as reasons for relocating to a more favorable business environment.
The repercussions of this crisis are devastating. Thousands of workers have already been laid off, leaving families in financial ruin. Communities reliant on steel mills for economic stability are now struggling to survive.
PALSP has called on the government to implement urgent reforms, including subsidizing electricity rates and reducing interest rates to single digits.
“The steel industry has the potential to drive Pakistan’s economic recovery,” Bukhari emphasized. “With the right policies, this sector can increase capacity utilization, reduce idle electricity payments, and reignite growth. But time is running out. The government must act now to prevent a total collapse.”
The survival of the steel industry is not merely an industrial challenge but a national economic imperative. Policymakers must act decisively to safeguard this critical sector before the damage becomes irreversible.
