ISLAMABAD: Pakistan Association of Large Steel Producers (PALSP) Sunday conveyed to the government that the irresponsible action of removal of the Federal Excise Duty (FED) in erstwhile tribal areas' steel units will give them huge advantage of over Rs 25,000 against documented industry in tariff areas.
On Sunday the association strongly rejected the erroneous impression that the steel industry is selling bars at exorbitant rates.
The association explained that during the last and current fiscal year, international as well as domestic market remained highly volatile and major fluctuations in prices of steel products were witnessed due to a confluence of factors such as commodities super cycle, massive infrastructure spending by leading economies to boost their indigenous economies coupled with shortage of supply due to the adverse effects of COVID19 on a strained supply chain. Owing to an evident inflationary commodities super cycle as mentioned by a report from JP Morgan, erratic out of control prices of raw material and finished products in international market were witnessed. The prices of Steel Scrap in the international market have almost doubled in a single year from
June 2020 to June 2021. The continuous increasing trend was observed in international prices of steel products as well, it stated.
The average monthly price of steel scrap as per London Metal Exchange (LME) in June 2020 was $260, whereas the latest price for the month of June 2021 is $515. Similarly, prices of Steel Rebar as per LME last year was $420, whereas in June 2021 FOB prices (excluding freight charges, local duties and taxes) are Turkey $ 770, China $ 898, CIS $ 780.
Evidently, comparing prices with leading steel manufacturing nations, the local steel rebar prices being sold are still at 24% discount to US domestic prices and approximately 17% to 15% less, than Turkey and China, respectively.
Computing the lowest June 2021 FOB price of rebars globally, Turkey at $770 FOB would equate to approximately $1120 CNF with 17 percent general sales tax ( GST) without any duties added (i.e $770FOB + $60 Freight + 5% handling and LC charges + 10% importers gross margin + 17% GST). Whereas it is observed that the current local steel manufacturers are selling bars today at prices of Rs. 150,500 including 17% Sales Tax, equating to $950 (i.e 17% cheaper than Turkish rebar). Despite facing losses and operating at very low margins, the surge in international prices of raw material leaves no option for local steel manufacturers to pass on costs to the consumer. Pakistan's steel industry is selling bars at far less price in comparison to prices by absorbing massive cost increases through reducing their profit margins from 8 percent to 3 percent that were 19 percent to 12 percent from 2015- 2018 respectively.
Local steel industry has absorbed a majority of inflationary pressures such as increasing scrap
prices in the international market and selling bars in domestic market at far less price in comparison to prices world over. Despite incurring massive increase in the cost of electricity, increase cost of doing business, local steel manufacturers are still providing cost effective material to the construction sector.
The energy cost in Pakistan, a vital cost component for steelmaking, is double to that of the regional peers, the association maintained.
Long Steel manufacturers who were already suffered from fluctuations prices of steel in international market and surge in energy prices are now facing the government decision of withdrawal of FED on erstwhile FATA/PATA in recent budget 2021-22. The decision was taken without taking all stakeholders into account and the irrecoverable consequences of the decision will result in closure of domestic steel industry and immediate cancellation of Chinese and domestic investments.
Copyright Business Recorder, 2021
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