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Man of steel: State of Pakistan’s steel sector

Published on 2nd Feb, Edition 5, 2015

 

Pakistan Ship Breakers Association (PSBA) welcomed the government’s decision to impose 15% Regulatory Duty (RD) on the import of all steel billets, steel bars and wire rods at a time when the country’s steel industry is trying its survival in the face of international competition. Steel melters, ship breakers and large scale re-rollers had approached the Federal Board of Revenue (FBR), and relevant ministries on the rising difference between locally manufactured and imported products that had swelled to Rs10,000-15,000 per ton. The 15% duty on steel billets, bars and wire rods is actually a move by the government that to protect local industry.

Pakistan Steel

Since Pakistan Steel Mills (PSM) has not been in a position to meet the growing requirement of steel in the country, the local merchants had to import steel products from various countries to meet their growing requirements of billets and re-rollable scrap to make various items for the market. Local traders of Iron and steel repeatedly urged the government to look into the looming problem of acute shortage of steel products, which could hamper construction activity in the country. The production capacity of Pakistan Steel began to improve in the second half of last year when it rose to 35 percent from 3 percent in May 2014 owing to financial bailout package of Rs18.5 billion. Located 30km south east of the port city of Karachi, the Pakistan Steel Mills (PSM) was incorporated as a private limited company in 1968. It commenced full-scale commercial operations in 1984. The PSM complex includes coke oven batteries, a sintering plant, furnaces, steel converters, bloom and slab casters, billet mill, hot and cold rolling mills, galvanizing unit and 165MW of own power generation units, supported by various other ancillary units.

Pakistan Steel has been having a very bad image tarnished by the stories of mismanagement, massive corruption and huge losses. In 2007, the privatization of Pakistan Steel came as a big scandal because it was auctioned off at throw-away price. The scandal had serious political repercussions for the former government of President Pervez Musharraf particularly after Chief Justice of the apex court gave his judgment against this privatization deal.

Besides PSM, there are 598 manufacturing units in Pakistan iron and steel sector. The sector plays a key role in the provision of raw material for capital formation and economic development in the country. Within manufacturers, the contribution of the PSM was 90 percent in fiscal year 2003-04, 69 percent in fiscal 2004-05, and 30 percent in fiscal year 2005-06. The steel industry has a big role to play in future, as steel structures are fast replacing masonry works including many international airport buildings. According to a study, the direct and indirect tax contribution made by the steel industry to the national exchequer has been quite amazing.

Chinese interest

China has been showing interest in Pakistan steel sector. In 2007, Shanghai Baosteel Group Corporation (SBGC), China’s steel giant, had shown interest in setting up 300, 000 tons cold rolled steel plant in Pakistan. It is worth mentioning that the Baosteel was among the interested 12 parties that had submitted statements of qualifications for acquiring 51-74% equity stake in the PSM in 2006. In January 2006, a delegation of Baosteel visited Pakistan to participate in the bid for purchasing Pakistan Steel. The delegation attended a forum of national and international pre-qualified bidders and visited several key departments of PSM. They had shown their keen interest to participate in the bid and in cooperating with PSM in future.

 

China Metallurgical Construction Corporation (MCC) also showed its interest to invest $2.2 billion for the expansion and revamping of PSM, the country’s largest and only integrated steel manufacturing plant. The Chinese company wanted to set up a new plant at a cost of $1.2 billion in the first phase of the expansion project. The new plant would be capable of producing 2 million tonnes of steel per annum. In the second phase, the MCC wanted to revamp and modernize the existing PSM plant at a cost of $1 billion. MCC, the China’s leading multi-disciplinary multinational company, is known for its experience in scientific research, industrial engineering practice and international trading capabilities. It is a major driving force behind the growth of China’s steel industry and it has carried out construction of many strategic steel production bases. The company has already produced a 500-page report on the expansion of PSM in 2005 after conducting technical investigation of the PSM in 1992.

Iron Ore

Today, Iron ore has become very important with the rising demand of steel in the international market. The high-intensity steel products are meant for the emerging needs of industries such as aerospace, nuclear power, and oil and gas prospecting. A million-kilowatt-capacity nuclear power unit requires about 2,110 tons of alloy steel, which includes high-temperature alloy, titanium alloy and special stainless steel.

Pakistan also plans to import plants and machinery from China to be used in the exploration of iron ore. According to an estimate, the country has over 780 million tons of iron ore, which contains 35 percent of iron. The machinery and plants manufactured by China can work in Pakistan, as China iron ore also contains 35 percent iron. Balochistan province has relatively good quality of iron ore. A resource of 50 million tons of magnetite iron has reportedly been established at Chigendik and Pachinkoh in Chagai district.

Iron ore deposits at Dilband in Mastung district of Balochistan are considered the country’s first ever economically exploitable deposits. According to an estimate, Dilband resource of over 200 million tons of iron ore contains between 30 to 40 percent iron. It is substantial iron ore deposit is bound to play an important role in future industrialization and economic development of the country. It is estimated that while the net value of the deposit is worth more than Rs10 billion, even 10 percent blending can save at least Rs200 million per year in foreign exchange. PSM can use coal and iron ore found in Balochistan and it has set a target of meeting 10 percent of its iron ore and coal requirements through local sources.

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