Pakistan has become an attractive market for many ferrous scrap suppliers and CEO of Agha Steel, Hussain Agha believes steel demand in the country will remain steady supported by several infrastructural projects, thereby, leading to increased consumption of scrap. Agha Steel plans to ride the wave of the new infrastructural project announced by the Pakistani government with the expansion of its steelmaking capacity by 160pc in 2021.
In an exclusive interaction with Davis Index, Hussain Agha, CEO of Agha Steel Industries shared insights on the Pakistani ferrous scrap and steel markets. Excerpts:
Could share your insights on ferrous scrap consumption in Pakistan?
When you have a lot of urbanization and you have a very young population there is going to be a massive demand of infrastructural development which is a very positive sign for the steel sector, this demand for steel will increase the ferrous scrap consumption in the coming future. Considering this demand from the infrastructural sector, Agha Steel forecasts to grow at a compound annual growth rate (CAGR) of 15pc in the next 3-4 years.
Brief us about Agha Steel’s upcoming capacity expansion plans and the recent IPO?
Agha Steel industries plan to install (MIDA plant) one of Asia’s first endless steel plant with DRB technology in partnership with Danieli. This revolutionary technology will increase Agha’s capacity from 250,000mt to 650,000mt by 2021. The total worth of the project is PKR7bn ($43.71mn), out of which PKR3.8bn was raised through the recent IPO of Agha Steel Industries. The IPO got an overwhelming response from the investor community and was oversubscribed 1.63 times and making it the largest steel sector IPO and 2nd largest IPO in the history of Pakistan.
Post COVID-19, Pakistan steel industry has seen still struggling with finished steel demand, what factors could drive domestic steel demand in the coming days? Where do you see finish steel prices in the coming quarter?
The government of Pakistan announced a construction package in April which has been very influential in increasing the steel demand in the country. Another factor has been the announcement of public sector projects like dams and CPEC projects which consume huge amounts of steel, making the demand rise sharply. This has pushed steel manufacturers to increase their capacity to meet the ever-growing demand.
As for the price of steel, in the near future, it may increase because of the supply and demand gap in the international ferrous scrap market due to the second wave of COVID-19 infections in many countries. With the increase in the price of ferrous scrap, a key raw material, we expect the price of steel to rise in the coming days.
How do you see the present government policy supporting the steel industry, what changes do you seek? How are Chinese investments influencing Pakistan’s steel industry?
The government has taken some positive measures to support the economy. Firstly by announcing the TERF Package which gives subsidized financing for modernization, business restructuring or expansion projects and also encourages new business ventures.
The recently announced reduction in the electricity tariffs for industries will help increase industrial growth and production, and at the same time boost the economy and provide more job opportunities.
The influence of Chinese investment and infrastructure development projects has been massive. We are observing high demand for steel because of major China–Pakistan Economic Corridor (CPEC) projects. Also, big dam projects have been announced which will further increase the demand for steel in Pakistan.
What is your view on the bulk market in Pakistan? How much ferrous scrap is Pakistan likely to import in the near future?
With the uncertainty in the global market and the shortage of ferrous scrap due to the supply chain disruption caused by the pandemic, we see a growing interest in bulk imports to meet the ever-growing demand of domestic steel producers. Potentially, we are looking at 5 to 6mn mt per annum of ferrous scrap requirement in the near future. Imports in 2020 might be lower than in 2019 due to the pandemic, however, it is expected to recover back strongly in 2021.