ISLAMABAD: Production of steel products has been drastically affected due to shortage of scrap as banks are not processing letter of credits (LCs).
The steel industry is facing a severe crisis due to the shortage of raw material scrap, and the situation is going from bad to worse, according to a statement issued Tuesday by Pakistan Association of Large Steel Producers (PALSP).
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The local prices of scrap have jumped from Rs120,000/ton to Rs200,000/ton in just three weeks, causing many mills to shut down.
Only 30 per cent of mills are barely operating at very low utilization rates due to the shortage of raw material scrap, and there seems to be no end in sight with rebar stocks of the country depleting in April.
Rebar manufacturers are being held hostage, and with the domestic scrap prices, rebar prices would easily cross over Rs325,000/mt. Domestic scrap dealers, known locally as Kabaris, are taking advantage and holding mills hostage with pricing.
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The shortage is particularly acute in the case of scrap imports, which are a critical component for the steel industry. In the second quarter of the current fiscal year (Q2FY23), scrap imports stood at 616,000 metric tons, a decline of 50 per cent from the same period last year (Q2FY22), when 1,235,000 metric tons were imported. This is the largest drop in scrap imports in the last two decades.
Industry experts have warned that this crisis will have a far-reaching impact, with 42 allied industries expected to be adversely affected and 7.5 million jobs at risk. “The steel industry is the backbone of the economy, and if we do not take action now to support this sector, the consequences will be dire,” said Wajid Bukhari, Secretary General of PALSP.
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Wajid Bukhari, has warned that the shortage of scrap will have a far-reaching impact on the steel industry which is considered the backbone of the economy. He stated, “Due to the lack of availability of scrap, the domestic steel industry is being hurt drastically, and this will set back the country’s industrialization severely. There will be defaults across the allied industry sector, causing a financial emergency as banking loans to the private sector will not be serviceable at record high interest rates.”
PALSP has advised the government to implement an urgent scrap policy, like in India, to ensure timely availability. The shortage of scrap has already caused many mills to shut down, and it is expected that there will be no rebar availability in April.
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Bukhari further added: “Joblessness and lawlessness would increase drastically as the closure of steel mills will have a disastrous domino effect. The government needs to act urgently to open LC’s and ensure timely availability of raw material scrap to prevent a complete collapse of the steel industry, which will have far-reaching economic and social consequences.”
The shortage of scrap is causing great concern, and if left unchecked, it will set back the country’s industrialization severely as over $500 million Capex has been invested in the sector in the last 7 years. The shortage of scrap can cause defaults across the allied industry sector as many mills have already entered into a force majeure shutdown.
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“This crisis will have a cascading effect on the economy, and there will be no rebar availability in April. All projects, reconstruction activities due to record flooding, dams will all come to a standstill,” said Wajid Bukhari. The government must act urgently to open LC’s and mitigate this crisis before it is too late.
