Pakistan’s imported scrap market was mostly quiet this week, amid heavy rainfall across the country. Meanwhile, market participants are waiting for fresh Turkish deals to get further price directions. The subdued demand for finished and semi-finished steel, owing to limited construction activities during the monsoons and flooding has kept buyers and steelmakers sidelined.
Fresh offers are at $485-490/tonne (t) CFR levels, down by $5-10/t. However, a limited quantity is heard to have been booked at these levels.
Meanwhile, the increased input costs due to a hike in electricity tariffs, and slow finished steel demand have led to a cut in steel production to below 50%. Some mini-mills have even closed their furnaces temporarily. “The situation is such that increased power tariffs are forcing some furnaces to close down amid already piled-up inventory and slow demand,” said a reliable source based in Pakistan.
“Markets are heading south. Mills are all running now at less than 50% capacity. And in the first quarter of the current financial year of FY2022-23 (FY23) overall capacity utilization will be 35-40%,” said a major steelmaker based in Pakistan.
Additionally, already piled-up finished inventory is likely to reduce rebar prices further. Most of the mills are struggling with liquidity issues. Hence, to get maximum profits, mills need to lower rebar prices.
Factors leading to slow market
- PKR continues to slide against dollar: The Pakistani rupee’s (PKR’s) declining trend continued during the week despite the comfort derived by the recent IMF tranche as well as investments confirmed by Saudi Arabia and Qatar. The PKR is now trading at 221.9 in the currency exchange market against 216.6 recorded last week. The Pakistani rupee is under severe pressure due to drying up of foreign exchange reserves and declining foreign direct investments (FDI).
- Rebar offers unchanged: Domestic rebar offers remained unchanged this week. Offers for G-60 rebar (10-12mm) are kept at PKR 220,000- 225,000/t exw-Punjab, including taxes. However, the tradable value is lower by PKR 5,000-8,000/t ($23-36/t) exw, depending on payment terms. The heavy rains and floods have slowed down steel consumption from end-users.
- Floods cause widespread destruction: The flood situation is likely to deteriorate further as more rains continued to pummel already flooded areas. Half the country is submerged under flood waters that have claimed hundreds of lives and caused widespread destruction of crops, livestock, and infrastructure. But the true impact will only be felt after a few months. Damage to infrastructure, transport and railway networks has been impeding efforts to deliver aid and shift people from flood-hit areas to safer locations.
- Hike in power tariffs spells trouble for steel industry: Massive hikes in electricity tariffs have affected all industrial segments, including the steel sector, leading to a crisis-like situation due to rapidly rising input costs. According to a letter written by the Pakistan Association of Large Steel Producers (PALSP) to the concerned ministry, the National Electric Power Regulatory Authority’s (NEPRA’s) decision of issuing a PKR 11.10 per unit hike in the energy tariff under the head of Fuel Charges Adjustment (FCA) has created a crisis-like situation for the sector. As per details, the overall electricity tariff has increased by 53.68% this year from PKR 18.20/kWh to PKR 27.97/kWh.
The steel sector has appealed to the government, seeking help. It has requested that the government should look into issues being faced by the manufacturing sector as input costs are already on the higher side and profit margins are squeezed.
Outlook
Based on the above factors, Pakistan’s imported scrap market is likely to remain subdued in the near term. Industry participants believe that market may need almost two weeks to recover from the flood situation.
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