Within a short span of just four days, Pakistan Steel Mills has announced two price hikes for its products-hikes that are likely to have serious negative repercussions for a wide range of sectors.
It notified the first increase on 1st March, which raised the ex-factory price of steel billets/blooms by Rs 3360 per ton.
The rates of SAE 1000, 1016 grades rose by Rs 2760 per ton. While the related industries were still reeling from the effects of this price increase, on Thursday came the announcement of yet another increase for various steel products, including iron ore and steel billets.
The price of steel billets has now gone up from Rs 23,500 to Rs 28,250 per ton. Add to this 20 percent sales tax and the price goes sky-rocketing.
The negative effects have already begun to show in the market.
The first announcement, for instance, immediately pushed up the rate of iron bars from Rs 32,000 to Rs 35,500 per metric ton.
It is not hard to guess how the second increase will impact economic activity, especially the construction industry.
What is happening is surely not in accord with the assertions of Finance Minister Shaukat Aziz, who, not long ago, had rightly identified the role of housing sector as being of primary importance in triggering major economic activity.
The engineering sector is angry too, and not without reason. Reacting to the new prices, the Chairman of Pakistan Association of Automotive Parts and Accessories Manufacturers (PAAPAM) has pointed out that steel sheets and coils are now to cost Rs 55,000 per ton in the open market as compared to Rs 23,000-24,000 per ton only three months back.
Pig iron, he went on, which only about three months ago was available for Rs 12,000 is now priced at Rs 25,000 a ton.
As a consequence of these increases as well as artificial shortages created by black marketers, he claimed, around 40 units have suspended their operations while majority of the foundries are working at half of their production capacity.
He may have exaggerated things a little, but there is no denying that the latest price hikes will badly hurt these and several other sectors.
Pakistan Steel Mills says that the increases have been necessitated by increased international prices of iron ore and other inputs.
That though is only half of the truth. It is true that the international prices have gone up driven by the voracious buying by the Chinese, but as far as Pakistan Steel's inputs are concerned, it has to incur no additional costs. It has long-term contracts with the suppliers of various inputs.
Which means they are not expected to ask for extra money unless they have decided to default on the old contracts.
That, of course, is not the case. It is just that Pakistan Steel does not want to see its profits dwindle and hence has decided to revise its prices in accordance with the upward trend in the international market.
It has two good reasons to do that: one to uphold the rules of free market; and two, to avoid getting into a situation where its detractors might use the reduced income receipts to accuse it of low efficiency that is generally associated with public sector entities.
In short, it has to act like any private sector entity, whose primary objective is to make profit.
As the rules of business go Pakistan Steel is not unjustified in behaving the way it has. Commercial organisations, which it is, are expected to take advantage of market conditions and keep in step with the obtaining environment.
Had Pak Steel been a private sector entity could it have been expected to not take advantage of the changed market scenario?
Most certainly not. It is for the government to bring in corrective measures to ensure that the economic activity and industrial competitiveness are not eroded. So far as the issue of high international prices is concerned, that is not a problem only Pakistan has to face.
It would, therefore, be useful for the government to look at what some of the other countries, especially neighbouring India, are doing to deal with the situation.
The Indian government has tried to ease the pressure on its industrial sector through substantial tax cuts on steel imports.
The excise duty has been halved, having been brought down from 16 percent to 8 percent; and the import duty is being charged at the rate of 5 percent only.
The government here too needs to act likewise in order to provide relief to so many industries that depend on the products of Pakistan Steel Mills.
In fact, that is all the more important for it to do to make the local industries competitive as the implementation dates of SAFTA and WTO draw nearer.
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