Govt warned of rise in rebar prices

Large steel producers have warned the government that a surge in steel rebar prices is imminent owing to the skyrocketing energy costs and called for a review of energy tariffs to save the industry from further trouble.

The steel sector, a pivotal pillar of economic infrastructure, relies heavily on electricity as a primary input, with power costs constituting over 50% of production expenses. The escalating electricity prices have already forced several steel units to shutter their operations while those still operational are functioning at a fraction of their capacity.

Pakistan Association of Large Steel Producers (PALSP) has repeatedly appealed to the government to provide electricity to the steel industry at reduced rates and foster maximum capacity utilisation instead of releasing payments to the independent power producers (IPPs) for unused electricity.

In FY2023-24, electricity consumers will collectively bear staggering capacity charges of Rs2.025 trillion, a burden exacerbated by idle power plants.

The industry faces the grim reality of poor agreements with these power plants, which stipulate that capacity charges must be paid even if government utilities fail to draw electricity from them. Adding to this crisis, Nepra recently green-lighted a Rs3.28 per unit increase in electricity rates for all consumers.

Currently, according to the steel industry body, the average base tariff stands at Rs29.78 per unit. When taxes and additional charges such as fuel price adjustments, quarterly adjustments and surcharges are factored in, the cost of a unit of electricity skyrockets to over Rs50.

“As a direct consequence of the mounting power tariffs, steel prices are on the verge of a staggering increase of over Rs10,000 per ton,” warned Wajid Bukhari, Secretary General of PALSP.

At present, the branded G-60 rebar is priced between Rs285,000 and Rs288,000 per ton. However, the impending energy tariff hikes, including the fuel and gas surcharges, will place immense pressure on customers to accept higher prices.

PALSP said that due to the exorbitant energy costs, many steel producers had been forced to reduce their capacities or shut down their plants. “This, in turn, has led to the power distribution companies imposing exorbitant capacity charges on consumers.”

Over the period from June 2022 to August 2023, the steel bar prices have risen by 31% while other price determinants have registered staggering hikes of more than 65%. During the same period, electricity prices have surged by 73%, Pakistani rupee has devalued by 70%, petrol prices have climbed by 70% and financial charges have risen by 67%.

Published in The Express Tribune, September 26^th, 2023.

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