Steel producing giant, Amreli Steel Limited, has announced a halt in productions for 20 days given dwindling demand caused by catastrophic flooding across the country.
“We are writing to communicate that Amreli Steels Limited has decided to shut down its plants for twenty days owing to low demand of steel rebars in the country due to unprecedented monsoon rains and flash floods witnessed across the country. Consequently, no manufacturing will take place from August 31 to September 19, 2022,” the company said in a notice sent to the Pakistan Stock Exchange (PSX) stated the PSX filing. Resumption of operations, or further extension in production suspension, will be communicated accordingly, the company said.
Taurus Securities Head of Research Mustafa Mustansir said, “The situation is really bad. Large steel players were already carrying high inventory due to the monsoons since July.” Talking to the Express Tribune, Steel Analyst Arsalan Ahmed said, “Companies have not been able to import raw material, including steel scrap, owing to restrictions placed on Letters of Credit (LCs) by the State Bank of Pakistan (SBP).” On the other hand, finished goods have also piled up in the company’s inventory, he explained.
“After the floods, the situation has intensified given that roads have been severely damaged making steel transportation very difficult. At the moment, government projects are similarly on hold while the private sector is also reluctant to take new undertakings,” Arsalan added.
Agreeing with the steel giants move, Karachi Iron and Steel Merchants Association (KISMA) Chairman Shamoon Bakir Ali said, “The market has practically come to a standstill. There is no demand and therefore no sales.”
Voicing similar concerns, JS Global Research steel analyst Waqas Ghani Kukaswadia said, “Demand has taken a considerable hit due to the prolonged rain spells and overall slump in construction activities. If this continues, it will prolong the lull in demand and put pressure on the pricing power of steel and cement manufacturers as well.”
“It is estimated that most steel companies have faced around 50% decline in sales volume in the past two months,” he added.
Senior Analyst at Arif Habib Limited (AHL), Misha Zahid said, “Steel demand has shown a massive decline during July and August of 2022, due to flooding which has temporarily disrupted economic activity. We believe the first quarter of the year will be tough but once the rehabilitation process commences, particularly housing and infrastructure, offtake will post a rebound.”
Mustansir, however, added that, “At present, there is a clear drop in demand for construction materials. Distribution networks have also been affected as the transport infrastructure has been damaged.” Explaining that industries were already expecting a contraction in demand for FY2023, due to fiscal consolidation and monetary tightening. After the floods, however, “We can expect other companies to announce temporary closure as well,” he warned.
Published in The Express Tribune, September 1st, 2022.
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