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ISLAMABAD: The documented steel sector will be forced to close down its units for an indefinite period in case the issue of Letters of Credit (LCs) is not resolved within the next four days.

This was resolved during an emergency meeting of the leadership of Pakistan Association of Large Steel Producers (PALSP) about ways to deal with the ongoing crisis. The meeting was attended by representatives of leading players of Long Steel industry, namely Nomee Steels, Naveena Steels, Mughal Steels, Amreli Steels, Agha Steel Industries, FF Steels, Faizan Steels, Karachi Steels, Ittehad Steels, Fazal Steels, Kamran Steels, Pak Iron, and Pak Steel.

During the meeting, the documented steel sector once again urged the government to help pull it out of the crisis it has been facing due to the restrictions on opening of LCs. The members of the PALSP, who are the leading players of the steel sector, pointed out that their sector is the backbone of the economy as it has emerged as one of the country’s leading exporters.

The association represents the transparent and documented steel manufacturing sector of the country.

LCs: Large steel sector seeks govt’s help

During the meeting, the leadership of PALSP also expressed profound concerns over the ongoing industrial as well as economic crisis amid depleting foreign reserves and curbs on LCs, continuous rupee depreciation, tremendous inflationary pressures, liquidity crunch and significant rise in the cost of production.

The members were concerned especially about the curbs on opening of LCs and expressed fears that if the matter is not resolved within four business days, it would lead to indefinite closure of factories, leading in turn to massive deindustrialization and job losses.

The meeting noted that up to 44 allied industries are dependent on supply of steel.

Closing of the factories due to non-availability of raw materials would lead to irreparable damage to the steel industries as once the plants enter force majeure shutdown, it would be impossible to restart them.

Local dispatch of cement is down by only 9 percent for the month of December year on year (3.67 million metric tons), whereas import of steel scrap is down for the month by a record 55 percent year on year (191,000 metric tons), the sharpest year on year drop to date in the last 10 years suggesting massive industrial shutdowns.

This means that a severe steel shortage shall accrue in the coming months of February and March.

If the restrictions imposed by the State Bank of Pakistan last longer than four business days, then steel rebar prices will cross Rs280,000 per ton. The import of scrap for the month of December 2022 was only worth $100 million, hardly 2 percent of Pakistan’s total import bill. However, the failure to allow imports would result in a loss of at least 7.5 million jobs due to the shutting down of cement, cables, tiles, allied and construction industries.

It may be mentioned here that the steel sector has emerged as the fourth largest exporter in the past few years.

In the last financial year, steel exports stood at over $800 million with zero subsidies extended by the government.

It is the largest ‘zero subsidy exporting sector’ of Pakistan in comparison to other sectors which enjoy lavish government subsidies with reference to tariffs, duties and preferential financing.

The ability to enhance the sector’s export potential is far greater than that of textiles.

However, if raw material import is administratively blocked, it would result in irrecoverable damage and irreparable deindustrialization, where the effects would be felt for decades to come, according to analysts.

Copyright Business Recorder, 2023

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