Pakistan Proposes to Link Domestic Steel Prices with International Market Rates

Manzoor Ahmed Wattoo, Pakistan's Minister of Industry and Production, recently said the government is proposing to fix the prices of local steel products manufactured by state-controlled Pakistan Steel Mills Corporation Limited (Karachi, Pakistan) to be on par with international market standards. According to research by Industrial Info Resources (Sugar Land, TX), Wattoo, who was addressing the first iron and steel conference in the country, also stated that henceforth price modifications would not be permitted unless approved by the Ministry of Industry and Production. The proposal aims to not only integrate the steel industry in the country but also evolving a transparent, open system of operations.

Presently, steel companies in Pakistan do not conform to international steel prices but carry out price fixations independently. Wattoo also stressed the need for a committee to ensure steady supply of raw materials for the industry. He said that the government plans to assess not only the current duty and tax structure but also the high mark-up prices of steel products in the country. The rates and taxes on steel products in Pakistan have not been altered despite the slump in steel prices globally.

Wattoo also announced that tenders for Pakistan Steel Mills' capacity expansion project would be published shortly. The steel company is planning to augment its production capacity from the existing 1.1 million tons per year to 5 million tons per year. Pakistan hopes to attract international bids for the project.

Although Pakistan has a total installed capacity of about 8 million tons per year, the country produces only about 4 million tons per year of steel. The country's per-capita steel consumption is only 30 kilograms compared with China's 384 kilograms. In the last fiscal year, Pakistan's demand for steel accounted for only 0.4 percent of the global consumption of 1.4 billion tons. Given the current slump in demand, global steel consumption is expected to be around 1.1 billion tons in 2009.

The Ministry of Industry and Production recently proposed imposing a 10 percent-15 percent import duty on steel products in order to protect domestic production and sales. The import duty will be imposed on three categories: galvanized products, cold- and hot-rolled coils. Pakistan Steel Mills, the country's largest steel producer, has been severely affected by the decline in steel prices worldwide. In April 2008, the firm signed contracts for raw materials at much higher rates, resulting in costlier finished products. With other steel producing countries lowering product prices, Pakistan Steel Mills witnessed a drastic slump in sales and recorded a loss of $156 million for the period July 2008-March 2009.

In view of the present scenario in the steel sector, Pakistan's government is formulating a National Steel Policy. The policy, expected to be announced in the next two weeks, aims at bridging the demand-supply deficit in the country by increasing domestic steel production capacity to 15 million tons per year by 2020. Pakistan has proven iron ore reserves of about 1.42 billion tons. The country's primary deposits are located in North West Frontier Province, Baluchistan and Punjab. These regions account for 947 million tons of iron ore reserves and are estimated to contain 20 percent-60 percent of iron content. Kalabagh, which has about 450 million tons of reserves, contains 30 percent-35 percent of iron.

The new steel policy also proposes the development of steel mills in these regions. This would not only increase production but also bring down manufacturing costs. The government has planned duty cuts, assistance in land acquisition, and development of infrastructure to attract foreign and private sector investors to set up manufacturing facilities. Pakistan's first private sector steel plant is being developed in Bin Qasim by Al-Tuwairqi Holding (Dammam, Saudi Arabia) at an investment of $300 million.