KSRM joins steel investment boom amid fears for 'over crowding'
Wednesday, 12 March 2008
Mushir Ahmed
Leading steel manufacturer, Kabir Steel and Re-rolling Mills (KSRM), is setting up a 300,000 tonnes mild steel rod plant in Chittagong, making it the third company to unveil huge investment in the rapidly growing sector.
Chairman of the company Mohammad Shahjahan said the plant would cost over Tk 5.00 billion and include a 50-megawatt power plant to supply uninterrupted electricity to the factory.
"The market for 60-grade mild steel (MS) is growing at a rate of 30 per cent a year, as the constructors are now increasingly using high grade rod to make buildings," he said.
"We see greater opportunities in the coming days," he added, ruling out worries that the sector would see a market glut in the wake of huge investment by two other top companies.
The company has opened a letter of credit to import machinery for the plant while it chose site at its existing 150,000 tonnes steel mill at Sitakundu, Chittagong. The new plant would go into operation by the end of 2009.
"Initially in the first phase, we will start a 300,000 tonne capacity re-rolling mill. But we will keep provision to expand it to one million tonnes within the next three years," Shahjahan, also a leading ship scraper, said.
KSRM announcement came just a month after the country's largest conglomerate, Abul Khaer Group, formally entered the sector, unveiling a Tk7.00 billion investment for an 800,000 tonnes plant.
Islami Bank Bangladesh Limited is financing the AK plant at Sitakundu, described as the largest investment in the sector. It will use the latest Thermo-Mechanically-Treated technology to produce 60-grade rod.
Bangladesh Steel and Rerolling Mills (BSRM), the main player in the rod business, has already started trial operation at its newly installed 300,000 tonnes plant, set up at a cost of over Tk 3.50 billion.
It has also unveiled plans to invest another Tk5.00 billon to raise its capacity to around one million tonnes within the next five years.
The Chittagong-based group was first to see sharp growth in high grade steel consumption, boosted by construction of increasing number of high-rise buildings in major cities.
Experts and bankers closely monitoring the sector said the latest investment boom in rod, a key construction component, will see a long-due consolidation in the steel sector and is good for the country and consumers
But they raised concerns that the small Bangladesh market, where total annual demand for rod is about 2.5 million tonnes and 80 per cent of which is controlled by low-grade producers, could see over-investment and a 'possible bad debt.'
A similar investment booms in the sugar and cement have caused a lot of 'bad loans' for the private and public banks.
"No doubt, the three companies want to shut the doors on other competitors. They want to grab the opportunities before others can move in. It will lead to consolidation in the sector," said a banker at a local private bank.
"As the buildings are getting higher and higher, the big and small constructors will have no choice but to switch to high-grade steel because of its durability," he added.
But another banker warned that the cumulative capacity of the three would outpace demand.
"Such a big investment at such a rapid pace does not make economic sense right at this stage. The three will have a total capacity of around 2.5 million tonnes when they go into full operation by 2009," said he.
"But the question is can the Bangladesh market where small buildings still dominate the annual construction activities can consume the bulk of their production?" he added.
Leading steel manufacturer, Kabir Steel and Re-rolling Mills (KSRM), is setting up a 300,000 tonnes mild steel rod plant in Chittagong, making it the third company to unveil huge investment in the rapidly growing sector.
Chairman of the company Mohammad Shahjahan said the plant would cost over Tk 5.00 billion and include a 50-megawatt power plant to supply uninterrupted electricity to the factory.
"The market for 60-grade mild steel (MS) is growing at a rate of 30 per cent a year, as the constructors are now increasingly using high grade rod to make buildings," he said.
"We see greater opportunities in the coming days," he added, ruling out worries that the sector would see a market glut in the wake of huge investment by two other top companies.
The company has opened a letter of credit to import machinery for the plant while it chose site at its existing 150,000 tonnes steel mill at Sitakundu, Chittagong. The new plant would go into operation by the end of 2009.
"Initially in the first phase, we will start a 300,000 tonne capacity re-rolling mill. But we will keep provision to expand it to one million tonnes within the next three years," Shahjahan, also a leading ship scraper, said.
KSRM announcement came just a month after the country's largest conglomerate, Abul Khaer Group, formally entered the sector, unveiling a Tk7.00 billion investment for an 800,000 tonnes plant.
Islami Bank Bangladesh Limited is financing the AK plant at Sitakundu, described as the largest investment in the sector. It will use the latest Thermo-Mechanically-Treated technology to produce 60-grade rod.
Bangladesh Steel and Rerolling Mills (BSRM), the main player in the rod business, has already started trial operation at its newly installed 300,000 tonnes plant, set up at a cost of over Tk 3.50 billion.
It has also unveiled plans to invest another Tk5.00 billon to raise its capacity to around one million tonnes within the next five years.
The Chittagong-based group was first to see sharp growth in high grade steel consumption, boosted by construction of increasing number of high-rise buildings in major cities.
Experts and bankers closely monitoring the sector said the latest investment boom in rod, a key construction component, will see a long-due consolidation in the steel sector and is good for the country and consumers
But they raised concerns that the small Bangladesh market, where total annual demand for rod is about 2.5 million tonnes and 80 per cent of which is controlled by low-grade producers, could see over-investment and a 'possible bad debt.'
A similar investment booms in the sugar and cement have caused a lot of 'bad loans' for the private and public banks.
"No doubt, the three companies want to shut the doors on other competitors. They want to grab the opportunities before others can move in. It will lead to consolidation in the sector," said a banker at a local private bank.
"As the buildings are getting higher and higher, the big and small constructors will have no choice but to switch to high-grade steel because of its durability," he added.
But another banker warned that the cumulative capacity of the three would outpace demand.
"Such a big investment at such a rapid pace does not make economic sense right at this stage. The three will have a total capacity of around 2.5 million tonnes when they go into full operation by 2009," said he.
"But the question is can the Bangladesh market where small buildings still dominate the annual construction activities can consume the bulk of their production?" he added.