ISLAMABAD: The steel industry of Pakistan, facing a severe crisis, has made an urgent appeal to the State Bank of Pakistan (SBP) to open letters of credit (LCs) for the import of essential raw materials.
The industry is on the brink of collapse due to a combination of factors, including the shortage of raw materials, the increase in international scrap prices, and the successive depreciation of the rupee over the last 18 months.
The steel industry is a crucial sector for the country’s economy, directly employing over 200,000 people and supporting numerous downstream industries. However, the lack of raw materials and the collapse of its trade finance limits have caused severe production disruptions and put the entire industry in jeopardy. Experts suggest that this crisis could put 7.5 million jobs at risk.
“We are facing a dire situation, and we need the support of the State Bank to help us secure the imports we need to keep our factories running,” said Wajid Bukhari, Secretary General of Pakistan Association of Large Steel Producers (PALSP) on Sunday.
Every day that we are unable to secure these imports, we are losing ground, and the future of our industry is in serious jeopardy, he said.
According to industry data, steel production in Pakistan has collapsed by a whopping 50%. The steel industry has been hit hard by the inability to source raw materials and the limited availability of these critical components has driven prices to record levels. “The price has already crossed 300,000rps/ton and we request urgent support from SBP to act quickly as mills will be running short on supply within weeks along with the recent wave of devaluation which would result in prices to cross 330,000rps/ton imminently.”
The shortage of raw materials has been further exacerbated by the lack of trade finance available to the industry.
Due to the increase in international scrap prices and the successive depreciation of the rupee, the trade finance limits available from the banking sector have become inadequate.
The recent devaluation of the rupee has shrunk the LC limits by 30%, overnight, putting even more pressure on the industry. The shortage is particularly acute in the case of scrap imports, which are a critical component for the steel industry. In the second quarter of the current fiscal year, scrap imports stood at 616,000 metric tons, a decline of 50% from the same period last year, when 1,235,000 metric tons were imported. This is the largest drop in scrap imports in the last two decades.
Industry experts have warned that this crisis will have a far-reaching impact, with 42 allied industries expected to be adversely affected and 7.5 million jobs at risk. The steel industry is the backbone of the economy, and if we do not take action now to support this sector, the consequences will be dire, the industry spokesperson said.
The PALSP has requested that the SBP provide support to the industry, even if that means curtailing its ability to import raw materials to 50% of last year’s volumes, taking into consideration the shortage of foreign currency available in the kitty. “We are calling on the State Bank to take immediate action to support our industry and open letters of credit for the import of raw materials, the spokesperson said. This is an SOS call for the survival of our industry, and we are counting on the State Bank to help us get through this crisis.”
The PALSP has requested that the SBP allow the industry to stay afloat, even if that means reducing its ability to import raw materials to 50% of last year’s volumes, due to the shortage of foreign currency in the nation.
The steel industry is urging the central bank to act quickly to address this critical shortage, as every day that passes without access to these vital raw materials is another day closer to the collapse of the entire industry. We cannot overstate the urgency of this situation, the spokesperson added.
Copyright Business Recorder, 2023