Bangladesh: Mounting power outages and rising production costs weigh on steel industry

• Prolonged power cuts threaten steel production, especially at smaller mills
• Higher power tariffs and revised VAT likely to keep scrap demand subdued

Bangladesh is witnessing power shortages as delayed government payments to independent power producers (IPPs), fuel supply constraints and rising electricity demand have led to widespread load shedding.

According to local reports, power cuts have ranged between 600 MW and 3,350 MW over the past two weeks, with some rural areas experiencing outages of up to 8-12 hours. Delayed government payments for imported fuel have further constrained power generation.

The situation comes at a time when Bangladesh has also implemented its new fiscal-year tax structure, with revised VAT on scrap and other tax changes taking effect from July, further increasing operating costs for steelmakers.

Steelmakers face rising production costs

A Dhaka-based market participant said, “The worsening power situation is adding another layer of pressure to an already weak steel market. Although most large integrated mills have not reported significant production disruptions so far, smaller rerolling and induction furnace (IF) mills are expected to be more vulnerable if load shedding continues. Cost estimates reported by major domestic steelmakers are,

• Electricity tariff revision: Estimated to increase steel production costs by around BDT 2,000/t ($16/t).
• Revised VAT and higher power costs: Expected to raise finished steel production costs by around BDT 4,000/t ($32/t).

Domestic rebar prices were heard at BDT 84,000-85,000/t ($681-689/t) ex-works in Dhaka and BDT 89,000-91,000/t ($721-738/t) ex-works in Chattogram.

A Bangladesh-based steel producer told BigMint, “We have not seen any impact on our production so far despite the reported power shortages. Larger integrated mills are still operating normally, but I think the situation is different for small and mid-sized mills. They are likely to feel the impact much more if the outages continue.”

Scrap buyers to remain cautious

Market participants believe the immediate impact on Bangladesh’s ferrous scrap imports will remain limited because steel demand is already weak and most mills are purchasing raw materials only against confirmed production requirements. However, prolonged power shortages-particularly affecting rerolling and IF mills-could slow steel production and delay fresh scrap bookings.

A Bangladesh-based trader said, “Persistent load shedding, higher electricity tariffs, and revised VAT will keep mills cautious, with imported ferrous scrap demand unlikely to recover until finished steel demand improves.”

Outlook

Bangladesh’s power supply challenges to remain a key downside risk for the domestic steel sector in the near term. While major integrated producers may continue operating without significant disruption, smaller and mid-sized mills are likely to face increasing cost pressure if load shedding persists. Combined with higher power costs, revised taxes and weak steel demand, imported ferrous scrap buying is expected to remain largely need-based.