Fall in steel prices less than international market

Mild bar (sarya) prices have dropped by Rs3,000 per ton in three weeks to reach Rs55,000-57,000 in the domestic market.

Farhan Zaheer June 24, 2010

Mild bar (sarya) prices have dropped by Rs3,000 per ton in three weeks to reach Rs55,000-57,000 in the domestic market, but this fall in prices is much less than the rate of decline in the international market, dealers said.

“World steel prices have fallen significantly over the last few months, the impact of which should have been reflected in the local market,” said Shamoon Baqar Ali, President Karachi Iron and Steel Merchants Association (KISMA).

Talking to The Express Tribune on Thursday, he said the current decline in mild bar prices could have been much more, but the increase in Withholding Tax (WHT) and Sales Tax (ST) in the 2011 budget restricted a further fall.

When the international market was hovering at $550 per ton, the local mild bar rates stood at around Rs70,000 per ton. However, now global prices have dropped to around $370-380, but local prices were Rs55,000-57,000 per ton, which may hamper construction activity.

“Mild bar sales in June remained sluggish, but that is expected to improve next month because of a cut in property tax,” Ali said.

The Sindh government has reduced Capital Value Tax (CVT) from four to two per cent on immoveable property.

Replying to a question, Ali said the CVT is expected to positively affect old properties more compared to new ones.

Former chairman Pakistan Steel Re-rolling Mills Association Ali Ahmed said: “Though the local market has not kept pace with the declining global market, it has still left some impact. In the next few months, we may see a major impact.”

“Since contracts are signed for one year, the impact of low international prices will be seen in coming months,” he said, adding most of the deals were signed by ship-breakers at $425-500 per ton.

In Karachi, 90 per cent of mild bar manufacturers use ship scrap as raw material which is being sold for Rs58,000-60,000 while billets (another raw material) are available for Rs65,000-68,000.

The impact of a gradual decline in international prices is more likely to be seen in Punjab where more industries use billets compared to ship scrap, Ahmed added.

Cement prices

After the increase of Rs50-60 in the north, cement prices have also surged in the south by at least Rs15-20 per 50kg bag, a bad omen for the construction sector, said Farooq-uz-Zaman Khan, Chairman Association of Builders and Developers (ABAD).

“Overall scenario of the construction sector is sluggish, though genuine buying and selling is seen in the market. Investment in the construction industry has been low amid political uncertainty,” he added.

A large number of cement companies posted losses in fiscal 2010-11 citing low prices and high cost of production.

When asked what if cement prices rise further, Khan said: “Financial problems of cement industries may increase the pressure on prices. Any increase in cement and raw material prices will have an impact on investment in the construction sector.”

Published in The Express Tribune, June 25th, 2010.


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