Steel sector sees 40% decline

Amreli Steels’ management says high energy cost, super tax impacted growth

ISLAMABAD:

The management of Amreli Steels Limited (ASTL), on Friday, said the local steel industry has witnessed a contraction of around 40% the recent quarter due to the floods.

During a corporate briefing, the ASTL management explained that many mills had recently shut down operations due to the high cost of scrap accompanied by other economic challenges. International scrap prices have increased by about 20% to $640 per tonne in 4QFY22.

In addition, the increase in energy costs and Fuel Charge Adjustments (FCA) of Rs9.5 per kwh and Rs11 per kwh, in May and June, also hampered margins. Super tax expense of Rs509 million along with FCA charges of PKR 834 million hampered ASTL’s bottom line.

The company, however, hopes to see improved demand after flood recovery and the planned rehabilitation projects pending with the Sindh Building Control Authority (SBCA) for approval. During the nine months of FY2022, the company recorded their highest-ever profit of Rs1.8 billion; attributable to soaring prices despite a decline of 2% in volumes to 371,000 tonnes. Gross margins, however, declined by approximately 0.4% due to an increase in international scrap prices, along with higher RLNG costs.

Speaking to The Express Tribune, JS Global Steel Sector Analyst Waqas Ghani Kukaswadia said, “Due to the floods, most steel companies saw around a 40-50% decline in volumes in the first two months of the outgoing quarter.”

“The weaker demand also put pressure on the pricing power of steel makers. However, there is hope that the demand will pick some pace in the coming months,” he added.

Arif Habib Limited (AHL) Head of Research, Tahir Abbas said, “The decline in demand seen is due to the overall slowdown in construction activity nationwide following record high interest rates and inflation, plus the soaring costs of input.”

“For reference, long steel sales are directly related to cement sales. So, the trend of cement sales in the country are a reasonable representation of the trend in the steel sector,” he added.

Meanwhile, the General Secretary of the Pakistan Association of Large Steel Producers (PALSP) Syed Wajid Bukhari said, “In the last quarter of the fiscal year 2021-22, no releases in the Public Sector Development Program (PSDP) expenditure were made.”

For the fiscal year 2022-23, the government has allocated the federal development budget of Rs800 billion under the PSDP. By amending the release strategy of the PSDP 2022-23 funds vide Finance Division Notification No F. 3(I)FO/2022-23, slashing the development funds released for the first quarter by from 20% to % 10 (that is Rs.80 billion of the total of Rs800 billion of the PSDP), the government has cut development expenditure drastically. Also, in the last quarter of the fiscal year 2021-22, PSDP saw no release in funds, said Bukhari.

“This is first time in 75 years that, due to the non-availability of funds, the government had to redirect all funds to finance the massive budget deficit,” he said, adding that, “As a result, all the government projects have come to a standstill.”

Published in The Express Tribune, November 19^th, 2022.

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