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LOW Source:
Pakistan Deaths
Pakistan Cases
1.32% positivity

Pakistan has one of the lowest consumptions of steel per capita at 35 kilograms, against 197 kilograms for Middle East, and 71 kilograms for India. It compares favorably with Africa, which is even lower at 28 kilograms. Steel builds nations; this was the South Korean mantra, which catalyzed its growth. It is the primary raw material for infrastructure development, and industrialization. Absence of an indigenous steel industry keeps an economy exposed to vagaries of exchange rate and price volatilities, while adversely affecting balance of payments situation. It further slows down infrastructure and industrial development, as any significant volatility in either commodity prices, or exchange rates often leads to significant cost over-runs.

Pakistan imported more than $2.6 billion of semi-finished, and finished steel products in FY20. Over the last five years, Pakistan has imported more than $15.5 billion of the same. Given reliance on imports, any fiscal stimulus to spur infrastructure development would eventually result in a lopsided balance of payments scenario.

On an elementary level, iron ore is the basic raw material (in the form of rocks), which we have in abundance in Pakistan, particularly in various districts of Balochistan, in Kalabagh, and in Chiniot. The rocks are then pelletized into iron ore pellets, chemical composition of which includes 58-62% Fe (Iron), among other chemicals. During FY-20, Pakistan exported $82 million of iron ore, adding to the non-exhausting list of low-value added products exported by Pakistan. The iron ore pellets can be used to produce Direct Reduced Iron (DRI) through direct reduction of iron ore pellets to iron by a ‘reducing gas’, such that iron oxide compounds are converted into metallic iron with a purity of 97% Fe. Production of Iron through DRI is an energy intensive process, however, it is also more efficient than traditional blast furnaces, given the higher Fe purity associated with DRI produced iron.

The iron can then be combined with other metals to create alloys, following which they can be used in various industries, depending on the requirement. DRI can then be converted into steel, which can be flat, long, or stainless. For example, automobile industry would use flat steel, while infrastructure would require bars, and long steel – resulting in multiple forward integration possibilities. In Pakistan, there are many small to mid-sized steel units which import ‘steel scrap’ to product steel, which is of generally inferior quality given low Fe content.

Pakistan has all the components for having a steel value chain in place, except for affordable energy. As iron production is an energy intensive process, its economic feasibility depends on availability of natural gas at a ballpark price of $3 per mmbtu or below. Current price of natural gas for industrial usage in Pakistan is $6.19 per mmbtu, while most recent LNG import is at $4.74 per mmbtu. This is where an economic decision needs to be taken. Should policy makers support a highly efficient DRI process which utilizes natural gas at an efficiency of greater than 80%, or should we continue burning gas on stoves, and as automobile fuel with efficiency of less than 25%. Pricing of energy resources with an efficiency lens, and economic value-added lens would catalyze a multiplier effect which may not be possible with more populist decisions.

If policy makers want the country to graduate to a middle-income status, and eventually upper-income, it needs an indigenous steel and industrial capacity, which would require tough non-populist decision, that may cost votes. The country can either take those tough decisions, or continue with an anemic growth rate which is currently trailing the population growth rate.


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