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Industry Overview

Pakistan's steel sector is divided into long and flat steel categories, with a low per capita consumption of steel compared to the region and the world, indicating significant growth potential. The COVID-19 pandemic has adversely affected the economy and the steel industry, leading to a slowdown in construction and production, although recent regulatory relief measures may benefit the sector. Globally, the steel industry has faced similar challenges, including falling demand and supply chain disruptions, particularly in China.

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9 views2 pages

Industry Overview

Pakistan's steel sector is divided into long and flat steel categories, with a low per capita consumption of steel compared to the region and the world, indicating significant growth potential. The COVID-19 pandemic has adversely affected the economy and the steel industry, leading to a slowdown in construction and production, although recent regulatory relief measures may benefit the sector. Globally, the steel industry has faced similar challenges, including falling demand and supply chain disruptions, particularly in China.

Uploaded by

neelamkirplani5
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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1.1.

INDUSTRY OVERVIEW
Pakistan’s steel sector, can be categorized into two types:

 Long Steel (Re-bars, Billets, Wire Rods etc.)


 Flat Steel (Hot Rolled Coils, Hot Dipped Galvanized steel, Cold Rolled Coils, Sheets, etc.)

Rebar, also known as reinforcement steel and reinforcing steel, is a steel bar used in reinforced concrete and
masonry structures to strengthen and hold the concrete in tension.

Billets are not of practical use until they have been formed into more functional shapes and sizes. While they have
already been put in the furnace, they still require a series of shaping and molding procedures such as hot and cold
working, milling and cutting before they are sold. It is used as a raw material to Rebar which has to be processed
further.

Wire rod is used for many different products. Wire is used, for example, to produce not only wire ropes, barbed
wire, wire mesh and nails, but also springs, welded wire mesh and reinforcement wire.

Pakistan remains amongst the lowest per capita consumer of steel (c. 43kgs per capita) in comparison to the region
(c. 276kgs per capita) and the world (c.214kgs per capita) [Source: World Steel Association], presenting an
exceptional opportunity for the steel sector to grow manifolds and for operators to benefit from a significant
upside potential. Currently total steel demand of Pakistan is c. 7.1 Million tons p.a. of which imports meet 45% of
local demand.
The price difference on imports mainly pertains to the regulatory duty of 15% and 25% on Billets and Rebars
respectively, imposed by the Government of Pakistan to protect local steel industry. These duties make the
product unviable to import in Pakistan.

1.1.1. Effects of the Outbreak of International Pandemic - COVID 19


Pakistan’s GDP growth, which has suffered over the last 2 years due to macroeconomic stabilization policies being
pursued by the government, is expected to slow down further in FY20 due to COVID - 19. While the number of
infected patients and causalities in Aughust 2020 have crossed 293,130 and 6,244, respectively. Risk of rapid
spread remains high given the sizeable and densely populated rural segment in the Country.
Regulatory relief from the central bank and recent cut in policy rate to 7%, should provide some relief to
corporates in these challenging times.

Experts are assessing the current situation closely with a view to understand its impact on the Pakistan economy as
a whole and its variable impact on its major GDP sectors. Given the soft lock down situation all over the Country,
the services and manufacturing sectors are being hit to a significant extent as workers are not able to reach
workplaces, leading to closures of businesses and loss of production of goods and services.

1.1.2. Global Steel Sector and Effects of COVID-19 on it


World crude steel production touched c. 1.8 Billion MT during 2019 (4.6% rise from last year) according to the
World Steel Association. Global demand for steel is expected to remain flat in the near future, owing to a slower
global economic growth. Uncertainty over the trade environment and volatility in global financial markets due to
COVID - 19 could pose downside risks to this forecast.

Asia produces 1.34bn MT of crude steel. An increase of 5.7% in 2019 as compared to 2018. The highest crude steel
production in the world is done in China, wherein in 2019, 928.3 Million tons crude steel was produced. [Source:
world steel.org)

China’s steel industry faced great difficulties in steel production and sales since the beginning of the new lunar year
due to COVID 19
Effects of this pandemic brought on China’s steel industry are:

 Falling demand
Demand dropped as all the construction, machinery, automotive, shipbuilding and home appliances stopped
functioning and delayed their resumption of work because of which demand declined sharply.

 Steel inventories on the rise


Chinese steel inventories increased after the holiday due to low demand and restriction on transportation.

 An increase in exports of steel


Since domestic demand had fallen, china’s exporters had cut prices to attract overseas. But there is a great
uncertainty about unloading at ports.
In addition to the duties mentioned under Section 3.20 of the Prospectus, the Chinese export is also liable to
pay a 24.04% anti-dumping duty.

 Uncertain steel prices


Steel prices dropped suddenly as soon as the Lunar Year holiday ended due to the bearish sentiment because
of the coronavirus.

 Tight supply of steel making raw materials


Steelmaking raw materials are low in supply as there is a restriction on transport which is limiting deliveries.
Companies are unable to source for raw scrap because scrapyards are closed in China. Workers are at home
due to the government’s restrictions to contain the virus.

 Production cuts
Steel production had a 5.4% cut from early February as steel mills either cut production or closed down.

 Restrictions on transport
To stop the spread of the coronavirus, domestic trucks and their drivers were stopped from working. That
made transport of raw material impossible and steel mills dependent on trucking were hit hard.

1.1.3. Effect of COVID – 19 on Steel Sector of Pakistan:


Steel Sector being heavily dependent on imported raw material is a highly leveraged sector. The overall economic
slowdown prior to the COVID 19 lockdown has had a negative impact on construction sector as well the steel
sector of Pakistan. Pakistan’s steel industry has suffered due to the sudden outbreak of the pandemic, which has
disturbed pace of work on public sector developmental projects and CPEC.

Construction being the backbone of the industry was a special concern for economic policy makers. During the
Covid lockdown the economic measure taken by the Government whereby the offer rate was reduced to 7%.
Reduced rates financing and deferment of liabilities were introduced, the highly leverage steel sector was the
biggest beneficiary of the said relief measures. Also with certain tax benefit schemes introduced in the
construction sector, the demand in post COIVD scenario for steel sector is on higher side.

https://www.pakistangulfeconomist.com/2020/01/20/brief-review-of-steel-and-cement-sector-of-pakistan/-

https://profit.pakistantoday.com.pk/2020/09/27/how-agha-steel-plans-to-tech-disrupt-the-pakistani-steel-
industry/

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