Following Pakistan's independence in 1947, it did not take too long for the State to conclude that effective industrial and economic development called for self-reliant iron and steel making capacity. Dependence on imports could not go on forever: apart from the very high import bill in hard currency, no realistic nation building would take place in such a scenario.
In fact, Pakistan's first Five Year Plan (1955-1960) incorporated the idea for local iron and steel capability. Various issues - not least international credit financing - kept the project under the lid' into the next decade. In 1969, the newly formed public sector Pakistan Steel Mills (PSM) concluded an agreement with Messrs V/U Tiajproexport of the then USSR for preparation of a feasibility report.
The consequent agreement with the erstwhile USSR enabled technical and financial assistance for the building of the PSM plant outside Karachi: this is still Pakistan's largest industrial complex, with a million-ton annual production in steel. PSM's specialised range of production is in 'flat' steel products that include hot rolled coils (HRCs), cold rolled coils (CRCs), and galvanised iron basic products. However present PSM production delivers approx 45% of the 700,000 tons local HRC requirement. On the other hand, existing total CRC production in both State and private sectors is estimated at just 110,000 tons - just 22% of the domestic requirement of 500,000 tons: imports far outstrip domestic capacity.
Needless to say, addressing domestic consumption via ever-increasing imports is not a very sensible option for Pakistan. This is where the already active private sector will need to play an expanding role. The private sector has grown steadily over the last decades, with over 140 steel melting induction furnaces in the country, producing good quality steel to help meet local requirements. Also, around 15 'Arc furnaces' of 5 metric tons (MT) capacity were set up in the private sector in early 70s - these units support PSM in steel production. The largest private sector manufacturer and exporter is International Industries Ltd (IIL): producing around 200,000 tons of GI/CR steel pipes annually.
Pakistan's existing steel consumption at 38 kg per capita is at the lower end of global figures - but demand for steel is expected to increase not only on account of steadily increasing requirements in the manufacturing and construction sectors, but also on the back of reconstruction activities following the catastrophic floods of 2010. Whereas foreign investment in Pakistan's steel industry has hitherto been difficult to attract, the scenario is now changing, and external players have started coming in, with Saudi Arabia's Al-Tuwairqi Steel Mills investing in Pakistan's steel industry - with a planned capacity of producing around a million metric tons (MT) of 'billet caster' annually. The view now is that of this being a highly untapped market with excellent expected returns.
However, getting international finance agencies such as the International Finance Corporation (IFC) and major multinationals such as Japan's giant Sumitomo group on board a sizeable steel project in today's scenario, is no mean feat. IIL has managed to do just that in setting up an entirely new manufacturing corporation - International Steels Limited (ISL) - to serve specific shortfall needs in the country's steel industry.
The Rs 8.7 billion manufacturer will significantly add to the country's steel needs, presently highly dependent on import of raw material for steel sector manufacturing. A major product line is Hot Dipped Galvanised Coil (HDGC) which is used in construction activities such as roofing and cladding (the process of fixing protective or insulating layers to the outside of buildings), in manufacturing refrigerators, elevators, ovens and other electric appliances, and in a number of automotive parts among other things.
ISL will additionally deliver Cold Rolled Coils as a premium raw material for various value-added products for both the domestic and export markets. ISL's commercial operations commenced in January this year, and the company intends to sell shares, inter alia, to the IFC and Sumitomo as strategic investors, to the public as well as to local and foreign institutional investors and high net worth individuals. ISL also has plans to expand into 'Galvalume' and color coated steel sheets in the near future. The private sector needs to be encouraged to participate in value added projects so that we can become self reliant in the infrastructure related products.-PR