Steel industry concerned at interest rate hike

ISLAMABAD: The steel industry on Thursday urged the government to take immediate action to ensure the availability of raw materials, reduce interest rates and provide energy at reasonable rates, to save this vital industry from a complete collapse.

Wajid Bukhari, secretary general of the Pakistan Association of Large Steel Producers (PALSP) said Thursday that the recent decision by the State Bank of Pakistan (SBP) to raise interest rates to record levels is putting unbearable strain on businesses that are already operating at just 30 percent of capacity.

Compounding overhead costs have detrimentally impacted many large steel manufacturers with one of the largest publicly listed rebar manufacturer in Pakistan reporting losses in last quarter.

Steel industry: SBP urged to help resolve issue of LCs

He said that the cost of borrowing is simply too high, and we are seeing many factories close down as a result. More than half the industry has already shut down and this will negatively affect Pakistan’s industrialization for generations to come.

The announced increase in the Monetary Policy Committee (MPC) will increase costs by at least 6,000 rps/ton, making it impossible for many businesses to operate. The industry is also facing a 3.23rps/unit electricity surcharge, which has been imposed, making it the most expensive energy in the region for industries. This will increase costs by around 4,000 rps/ton further, adding to the already unbearable overhead costs.

The situation is rapidly deteriorating; warns Bukhari. Raw material availability is only guaranteed until End-March, and if LCs are not opened, prices can easily cross 325,000 rps/ton. This will have a severe impact on the industry, as well as on the wider economy, with 7.5 million jobs at risk and 42allied industries affected.

Last year, Pakistan imported approximately four million tons of scrap raw material, whereas to date, the situation has reached a critical level, with imports for the first seven months of FY23 down by 40 per cent from the same period last year, suggesting tight availability of raw material and if there are no LCs available to manufacturers, imminent collapse is foreseen by March 23 time for the government to step up and support this vital industry, which is on the brink of collapse.

Copyright Business Recorder, 2023