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Construction sloth, currency doldrums

Steel sector steering rough course

SAIF UDDIN | March 27, 2024 00:00:00

Steel-makers in Bangladesh have invested huge sums of money amid growing demand for the key construction materials over the years concomitant with the country's massive infrastructure- development works in line with its development drive on a higher trajectory. Economic status-change aspiration remained the driving force. However, a change of fortune seemingly upsets them.

The ongoing adverse economic situation in the country, as also elsewhere, is said to have created serious trouble for them since they have to face multiple challenges like complexities in LC opening due to dollar crisis, increase in gas and power tariffs, as well as lower demand.

Industry people say the struggle of such heavy industries could take heavy toll on the country's overall economy, for the fact that they make a good contribution to the economy through providing different types of steel products to public-and private-sector development projects.

"Being a heavy industry a steelmaker is required to make huge capital investment and bear operational expenditures, but currently the dollar crisis has been taking a huge toll," a leader of the steel-makers' platform told a press conference on March 19. For example, an industrial unit's operational expenses have recently increased almost 65 per cent compared to the previous period due to devaluation of the local currency against the US dollar and other factors, said president of Bangladesh Steel Manufacturers Association (BSMA) Mohammad Jahangir Alam.

Explaining their predicament he said Bangladesh's steel sector "has been engulfed in a serious crisis against the backdrop of covid-19 pandemic and the post-covid global situation".

Over 85 per cent of the key raw material or scrap metal, machinery, and chemicals are imported from other countries for which companies need to open letter of credit (LC) with the banks. "But the banks are being unable to open LC for import of scrap metals and other ingredients as per our requirement due to dollar crisis , which results in scarcity of raw material and supply-chain disruption," he said.

The dollar rate increased as high as to hit Tk 125 for opening LC from Tk 85 a couple of years ago, he cited as a major spot of trouble. "As a result, the local currency has lost its value by almost 47 per cent."

Dollar-rate hike apart, the steel-makers are also said to be suffering from shortage of working capital, as they are in need of more working capital to meet the increased cost. But a brusque development in interest regime makes it difficult for them to manage high-cost funds."Lending-rate hikes from 9.0 per cent up to 13.5 per cent, increased tariffs of fuel, energy , and electricity, as well as increase in other charges, have led to higher operational expenses and want of working capital," said Mr Jahangir Alam.

The government authorities concerned hiked power tariffs by 15 per cent last year and by 10 per cent this year, besides revising upward gas price by almost three times in the last one year. As a result, production cost of per-tonne steel-goods increased by Tk 3,000, he said.

According to market sources, per-tonne better-quality or 72 -grade steel-rod price fluctuated between Tk 95,000 and Tk 97,000, depending on brands, in the last week. However, price of the same was around Tk 70,000 during the pandemic. Price of the materials went as high as Tk 102,000 a year ago.

Of the leading brands, per -tonne rod of BSRM was selling at Tk 97000, AKS at Tk 95000, KSRM at Tk 94000, GPH at Tk 94000, Akij Ispat at Tk 93,000, and BSI at Tk 88,000 in the past week.

A steel trader in the city's English Road area, Hasan Ahmed, told the FE writer that his sales plummeted by around 40 per cent, being weighed down by higher price.

According to Data available with the BSMA, the steel millers have invested around Tk 750 billion while the estimated annual turnover is around Tk 700 billion. Some 40 large companies meet the majority of local demand while around 200 small and medium steelworks are operating in the country to cater the local demand. Their production capacity is over 10 million tonnes.

Steel-manufacturing units in the country started operating in 1952. With the rise of Bangladesh's economy, newer industries started entering the growing market. The sector had witnessed a boom specially in the last two decades when some older companies started introducing newer technologies and some new companies launched their units. The sector has created a total of 5.0 million employment opportunities- direct or indirect.

Average per-capita steel -product use in Bangladesh is estimated around 45 kilograms annually, which is significantly lower than the global average of 208 kilograms. The figure in neighbouring India is almost double of Bangladesh's-- 87 kilograms.

Local steel sector is growing roughly at 10 per cent while the per-capita use is expected to rise to 100 kg by 2030.

Some of the companies in Bangladesh use ultra-modern technologies, including electric -arc furnace and quantum-arc -furnace technologies to use high-quality refined steel.

The leading steel industries in the country include Abul Khair Steel (AKS), Bangladesh Steel Re-Rolling Mills, Kabir Steel Re-Rolling Mills (KSRM), GPH Ispat, Anwar Ispat, and Bandar Steel Industries (BSI).

Contacted, Deputy Managing Director of the BSRM Tapan Shengupta told the FE that crisis related LC opening is seriously hurting the sector. "The operators cannot procure the raw materials within their affordability due to LC problem despite the scrap metals' price remaining stable in the international market." He also said currently the price of per-tonne scrap metal hovers around $450 in recent times, as the rate went through severe volatility after the covid-19 broke out.

Currently, public-sector infrastructure projects are the major buyers of the steel products, said the executive, adding that it is imperative that the sector run well so that the overall economy can flourish at the desired level.

Sources say scrap metals and recycled ships are the key ingredients of the steelmakers. The metals are melted in large furnace and then turned into billets ahead of making different categories of steel products.

Mild Steel (MS) rod, angle, beam, and galvanised iron sheet are most-widely-used building materials.

According to an international report by Straits Research, the global steel-market size was $928 billion in 2022. The sector is projected to grow to $1,210 billion by 2031, growing with a compound annual growth rate (CAGR) of 3.0 per cent till 2031.

Factors like rapid urbanization, the expanding automotive industry, and demand from the shipbuilding industry stimulate market growth, it added.

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