Demand for steel products falls sharply amid economic slowdown, power crisis

[Naveed Yaseen]

By Mansoor Ahmad
LAHORE: The steel industry is facing the problem of sharply reduced demand due to economic recession as the government, its main consumer, has drastically cut its development activities. At the same time, production of steel has been affected due to suspension of electricity supply.

Steel millers are ruing their decision to enhance their capacity by 100 per cent during the past five years from 3.5 million tons to around 6.8 million tons on expectation of enhanced demand.

“The economic recession of the past two years has in fact resulted in drop of demand to the 2004 level when the industry started enhancing its capacity,” said Yunus Mehr, a mini steel mill owner and executive member of the Lahore Chamber of Commerce and Industry.

He said 20 per cent of the steel produced in the country was consumed by the housing sector while the industrial sector normally accounted for another 20 per cent for construction and upgrading its structures.

He said the commercial sector involved in construction of plazas, hospitals, etc consumed 30 per cent of the locally produced steel about two years ago, adding the government used to be the largest consumer of steel for its annual development programme.

“The situation today is that housing sector activities have dropped by 50 per cent, reducing steel demand correspondingly. Industrial activity is now close to zero and the demand has declined by almost 90 per cent,” he said.

Commercial activities, he added, were also affected by the general economic depression while the government did not release funds for new development projects, leading to a 70 per cent fall in consumption of steel products.

Another steel miller said the steel industry was producing only 25 per cent of steel products compared to what it produced in 2005-06. He said the power crisis could not have come at a worst time, adding “steel mills are the first casualty whenever there is a shortage of electricity in the country.”

He said most of the furnaces and re-rolling mills were closed before the electricity shortage struck while operations in the remaining mills stalled after power supply to the steel industry was cut. “The mills are bearing Rs0.5 to Rs3.5 million per month as capacity charges while power remains shut.”

He said steel melting and production was a continuous process. Electricity cost accounted for 30 per cent of the input and the mills operating below installed capacity were not commercially viable.

He said steel (scrap) rates had stabilised at $305 per ton from the peak of $880 and the low of $250 per ton.

However, he added even after selling steel rods at Rs51,000 per ton the mills were incurring losses due to the high cost associated with production at low capacity.

A study by The News revealed that over 60 per cent of 250 steel furnaces, 279 re-rolling mills and 25 composite units of the steel industry also known as mini steel mills had stopped production rendering thousands of workers jobless. It was found that a furnace on average provided employment to 200 workers, a re-rolling mill operated with average 75 workers while a mini steel mill employed 1,000 employees. None is operating at full capacity due to steep decline in demand.

It was found that 80 per cent of the steel industry was located in Punjab, mostly concentrated in Lahore, Gujranwala and Sheikhupura.

The country currently has installed steel producing capacity of around eight million tons, of which Pakistan Steel Mills produces 1.2 million tons while the rest by the private sector.

http://www.thenews.com.pk/daily_detail.asp?id=186894