Pakistan: Raw material shortage worsens even as protests erupt over LC issue

The raw material crisis has further worsened in steel mills across Pakistan due to low availability of foreign exchange reserves. As a result, many mills are fearful of a closure if serious efforts are not made immediately to resolve the Letters of Credit (LCs) issue.

The State Bank of Pakistan (SBP) has already asked banks to open LCs on a priority basis for the import of essential products. However, steel producers claimed that they are still facing difficulty in opening LCs for import of raw materials.

Mainly, steel producers had scrap stock of two-three months and now their raw material stocks are almost finished. Mills are facing a serious shortage of raw materials, and many factories are compelled to temporarily shut down their operations.

“LC opening is practically not allowed, and it may be possible in the next two weeks. But the essential items will be prioritised over industrial items,” said a scrap trader.

Currently, SteelMint’s assessment for shredded scrap in containers stands at $460-465/t CFR, slightly down by $5/t from Tuesday.

Domestic market sentiments gloomy

• LC issue: The restriction on LCs has forced traders and steelmakers to protest on the roads pitching for their demands. Scrap buyers protested in front of the State Bank on Thursday and demanded immediate payment of foreign exchange as thousands of containers of imported items are stuck at ports.

Industry sources have urged the federal government to allow opening of LCs in order to ensure smooth operation of plants. The factories will have no other option except suspension of operations and layoffs of workers if LC opening is not allowed this week, sources said.

• Mills raise rebar prices: All leading steel producers raised  prices of rebar to PKR 235,000/t due to exchange rate volatility and a shortage of raw materials. Industry sources said that prices are likely to go up further in the coming days to PKR 250,000/t in the local market.

“Few steel mills have closed further sales and bookings of finished product,” said a steelproducer .

• Car sales fall 38% y-o-y on import restrictions: Automobile sales in Pakistan fell by 38% in December, 2022 to 16,811 units y-o-y, according to data released by the Pakistan Automotive Manufacturers Association (PAMA) on Wednesday. The drop was driven by restrictions on the imports of completely knocked down (CKD) units and problems pertaining to the opening of LCs. In this context, experts foresee car sales dropping by 40–50% in the fiscal year 2023, as per reports.