The ailing Pakistan Steel Mills which is currently running on below 20% production because of short supply of raw material and financial crisis is also going to lose the material supply from Iran under the US economic sanctions on the neighboring country.
With the meager production level and lack of credit to procure adequate supplies for its operations, the imports have almost been halted while depending only on local supply. The shortage of raw material is further reducing the production level pushing the national institution towards more losses.
PSM, the largest steel company in the country with the shortage of money was also unable to import raw material from Iran, owing to reluctance by banks to finance the transaction due to US sanctions on Tehran. Pakistan would be unable to import raw materials primarily iron ore from Tehran, the important supplier eve after the financial issues are resolved due to US backed sanctions.
The loss of the important supplier would not only deprive the state owned Pakistan Steel Mill of the iron ore with less freight charges but it would also increase the cost of production as for the imports of the same material from other countries the government institution has to bear more charges because of distance. Presently, in view of the financial constraints, the mill was currently utilizing local iron ore and coke from available coke breeze to keep all its production plants safe from any technical losses.
However, sources at PSM while denying that the imports were halted claimed that 55000MT coal has reached from Australia on January 12 while a consignment of 22000 MT iron ore was scheduled to reach the plant this month. But the mill was mostly depending on the local supply which has also started decreasing due to the lack of rules and duty on exports. The locally produced raw material was also being exported due to difference of cost and payment issue.
The government should either manage the required bailout package for running the plants at PSM at least 70% to 80% or shut down the whole business as the current 20 per cent production was no way in favor of the mill. The mill could only be profitable if it was run on the maximum capacity. Almost PKR 11 billion worth bail out package approved by the government was yet to be sanctioned by the concerned miniseries despite the fact that the current pace of production at PSM was adding the losses.
PSM, indebted by at least PKR 49 billion was, now hardly making the bare minimum PKR 1.3 billion per month against the PKR 5 billion worth of production made through running the plants at around 80% capacity. It is worth mentioning here that PSM faced massive losses in fiscal year 2009 of around PKR 26 billion, though those were reduced to PKR 11 billion during 2010.
The company which has remained in the list of profit giving organization for 8 years till 2008 had started facing huge losses because of the change in material prices. The policy of setting annual contracts for its purchases of raw materials, primarily iron ore from its suppliers, was another reason which added the financial woes of the mill as international commodity prices fluctuated wildly during 2008 and 2009.
Because the steel mill had often locked in contracts for supplies at higher rates, its production costs often did not match the prices it could command for the finished product. PSM was also allegedly facing the issues of rampant corruption and bribery.
(Sourced from www.pakistantoday.com.pk)
