Pakistan Today reported that the drastic increase the prices of raw material has created a crisis-like situation in the struggling steel sector of Pakistan, as major players have been declaring heavy losses for the last two years, absorbing the impact of input costs without passing it on to the end consumers. Pakistan Association of Large Steel Producers said “However, it is now becoming increasingly difficult for the steel sector to absorb the latest impact of growing prices of raw material internationally. Government should remove all duties on raw material to offset the impact of drastic increase in the cost of raw material, which is now crossing USD 400 per tonne.”
PALSP said “Contrary to the misleading statement on part of a body of developers, domestic steel bar prices have dropped over the past two years by 8pc in dollar terms, from USD 806 in 2018 to USD 746 today. The reason steel prices have increased since 2018 in PKR terms is primarily due to a 45% depreciation of rupee against dollar, which resulted in increased prices of imported raw materials.”
PALSP informed that since 2018, electricity costs have risen 56% while the cost of gas has gone up 116%. Between January 2018 and early 2020, interest rates had doubled from 6% to 13%, increasing financial costs of an industry that is highly leveraged by nature. Finally, the Covid-19 lockdowns exaggerated the losses made by the steel industry and led to a large increase in trade debts, resulting in higher borrowings and financial costs.
Despite the above challenges, the steel industry refrained from passing on a large portion of these cost increases and reduced profit margins to continue supplying steel bars at a competitive price to the construction sector. This is evident from profit margins of steel bar manufacturers that shrunk from approximately 8% to 3% between 2018 and 2020.