Infrastructure projects in rural areas of Pakistan would provide massive growth opportunities for the country’s steel industry, said Munif Ur Rahman, Co-founder of Khatib Sons International, a steel and scrap trading company.
In an exclusive interview with Davis Index, Rahman expressed optimism about finished steel demand in Pakistan and shared insights on Pakistan’s steel and ferrous scrap industry.
In the post-COVID-19 scenario, Pakistan steel industry is struggling with low finished steel demand. What factors could drive domestic steel demand?
For the last one year, the market has been very volatile due to various factors such as the new tax regime, currency devaluation, pandemic-related lockdown and a sharp decline in end-user demand. However, the government is trying to stabilise the situation with financial and political support. The Pakistani government has announced multiple projects like the housing scheme Naya Pakistan and taxation benefits for constructions. These initiatives have boosted the sentiments of steel producers, who are optimistic of an increase in finished steel demand.
The volatility phase further impacted the already thin per capita steel consumption of 32-45 kgs in 2019 in comparison to the global average of approx. 225 kgs.
Though per capita consumption of steel is very thin, it is expected that demand would increase to around 2mn mt by 2022. Many new steel capacities have been announced and demand for ferrous scrap, a key raw material for the industry, will see strong growth.
Mega infrastructure projects are announced for rural areas and small cities which will provide massive growth opportunities for the country’s steel industry. Infrastructure to connect small cities with big cities is also planned.
Five mage infrastructure projects in Pakistan would become fully operational in the coming days — Dasu Dam, Diamer Bhasha Dam, Mohmand Dam, Naya Pakistan Housing Project and Ravi Riverfront Urban Development Project. Pakistan is currently facing an overall housing backlog of 11-12 million housing units. The urban housing shortage is estimated to be around 4 million.
How are government policies supporting the industry and what changes does the industry seek? How will Chinese investments and infrastructural projects influence Pakistan’s steel industry?
The government is serious about the CPEC projects, through which Chinese investors have invested in Pakistan’s development projects. Since the supply of raw materials and finished steel supply is not in the government’s hand, the projects are less likely to help the local steel industry. All supply contracts for Chinese projects are with Chinese suppliers. Chinese companies import low-priced steel, cement and other machinery from China. Hence Pakistan’s local steel industry has not benefited from Chinese projects as yet.
What is your outlook on the Pakistani ferrous scrap market? will Pakistan be a potential bulk scrap buyer in the coming years?
Pakistani scrap importers are not very comfortable in buying bulk volumes. Uncertainties related to financials, scrap quality and delays in shipments force them to avoid such high-risk deals. For Pakistan steel mills — who are medium-sized mills from a global perspective — buying in containers is the best choice as it offers better cash circulation and easier handling.
Regular bulk import is not very feasible in Pakistan but once in a while, say in a quarter, a couple of major mills in Karachi could collectively book a bulk shipment. But the possibility of being a potential regular bulk buyer is limited. In the coming days, ferrous scrap imports in the country would again increase sharply with rising crude steel production.