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The outlook on long steel (rebars, billets etc.) seems rather bright on the back of government policy push (read: “IPO files: Agha Steel’s ‘Midas’ touch”,); but the same cannot be said for flat steel (sheets, plates, coils etc.) where demand may be found wanting even as the cloud of 2020 lifts.

According to the Pakistan Bureau of Statistics under its Large-Scale Manufacturing data, flat steel manufacturing shrunk 17 percent during FY20. Flat steel, typically Cold Rolled Coils (CRC) and Hot-Dipped Galvanized steel are used in the manufacturing of various automobile parts, electronic and home appliances (ACs, freezers etc.), while feeding into telecom and construction sectors as well. International Steel Limited (ISL)’s analyst briefing quotes this decline to be higher—at 24 percent; its own sales down 20 percent, despite 1.3 times more exports.

The company’s production capacity stood at 50 percent for galvanizing, 42 percent for CRC and 25 percent for its smaller segment for color-coated steel. Arrival of covid-19, gas and electricity shortages leading to plant shutdowns and overall demand in key sectors led to reduced utilization. Production across the automobile sector shrank from 23 percent to 54 percent for various segments. Other demand segments such as refrigerators saw production decline 33 percent; deep freezers 58 percent; air conditioners 12 percent and so on.

Meanwhile, Aisha’s volumes grew 26 percent owing to its expansion that come online in the start of the year; though the company performed under-capacity (FY20: 40%; FY19: 89%). Profits for ISL fell 81 percent during the year while Aisha’s earnings turned negative.

Since both companies are using imported Hot-rolled coiled (HRC), margins will remain subject to international prices while volumes will be determined by domestic incomes and purchasing powers. Whereas, some improvement is seen in the consumer segment—auto sector is expected to register a recovery—consumption of flat steel will remain vulnerable to macroeconomic environment and consumers’ buying powers. Unlike, long steel that feeds demand to the infrastructure and construction sector which is being buoyed by government’s construction package and substantive infrastructure development planned, flat steel will have to wait. Industrial development in the country is too weak to garner healthy demand in flat steel.

It is probably for this reason that after the recent wave of new expansions in the segment (Aisha’ steel, Hadeed’s that is upcoming), investment in the segment will remain lacklustre (even ISL’s plans to invest in HRC production are on a break) unless economic growth really catapults. For now, the only thing investors can go long on is long steel.