In another blow to the Naya Pakistan Housing Programme, steel prices have hiked exorbitantly. Amreli Steels has increased the price of rebars by Rs6,000 per metric ton.
“It is to inform you that due to the continuous increase in input cost, the booking rates of Amreli Steels’ rebars have increased by Rs6,000 per MT,” said the company in a message to its retailers. “The new ex-factory booking rates are Rs173,500 per MT and Rs171,500 per MT (deform and Xtreme rebars),” it added.
Due to a price hike in the international market and higher sea freight, input costs of local companies is increasing, said DH Corp Research Lead Karim Punjani. Endorsing his view, Taurus Securities analyst Ameer Hamza said, “Scrap is getting expensive globally due to unstable demand correction post-lockdowns and port jams in India, Bangladesh and China etc.”
“In addition, advance booking of scrap by Turkish mills have kept prices on the higher end,” he added while speaking to The Express Tribune.
Hamza stated that imported scrap has become unaffordable for ungraded long steel players in Pakistan and hence, the price gap between graded and upgraded long steel products has narrowed. “This has shifted the liking of consumers to graded long steel products,” he maintained.
“Therefore, long steel players continue to demonstrate strong pricing power and are likely to do so in the coming years due to strong demand and tight supply situation,” the analyst said, adding that input cost has increased due to these mentioned reasons; also, freight costs are at their highest levels. The number of steel units is over 400 factories making steel rebars all over Pakistan. Their combined capacity of rebars is over eight million tons per year.
Pakistan Association of Large Steel Producers (PALSP) Secretary General Syed Wajid Bukhari informed The Express Tribune that the present capacity utilisation is 70% and most units are operating under capacity as steel demand is still lower than that of 2017-2018.
“It is enough capacity to cater to domestic demand. Local steel manufacturers are catering to 100% of the local demand including CPEC projects and foreign contractors that require compliance to American, British and Chinese standards,” he said.
“Companies are facing the problem of thin profit margins and colossal losses,” he highlighted. “The year 2020 was one of the largest loss-making years for Pakistan’s steel industry in history and current industry margins stand at 2% to 4%.” In the last one year, the per ton price of rebars surged from Rs117,000 to Rs173,000 per ton. Reasons for hike in steel prices were a hike in prices of steel scrap in the international market, reiterated Bukhari. Average price of steel scrap, the main raw material for making steel, increased 79% from $299 in August 2020 to $535 in August 2021.
“The primary reason for such an increase is shortage of scrap and increased freight rates due to Covid-19 supply chain disruptions,” he added.
“Pakistan’s domestic steel industry is competitive and selling steel at par with international prices,” Bukhari stated. Currently, average international steel rebar prices C&F Pakistan stand at $794 per ton, which translates into Rs130,161. On average, rebar manufacturers in Pakistan are making only 2% to 4% net profit margin as compared to over 15% for cement, he said. The government should rationalise sales tax prices notified by the Federal Board of Revenue in coordination with the association by reducing from Rs140,000 to Rs125,000. This will have an immediate impact of Rs2,500 on domestic steel prices, the office-bearer suggested.
Published in The Express Tribune, August 19th, 2021.
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