Pakistan Steel is facing a severe financial crisis due to economic slowdown locally and downtrend in steel prices in the world market, said Mueen Aftab Sheikh, chairman of Pakistan Steel. Addressing a press conference at Pakistan Steel Mills (PS) plant here on Saturday, he said that crisis commenced after the tremendous decline in the mill's products sale, which stood at Rs 1.576 billion in November 2008 as compared to Rs 5.026 billion in July 2008.
He said that due to the financial crisis banks were also hesitating and refusing to open letter of credit for PS without 100 percent advance payment for import of raw material. He said that low sales of PS were due to the country's overall economic slowdown, downtrend of iron & steel products in international market, as also market, low volumes of steel export to Afghanistan, POL, electricity and gas price hike and standstill Public sector development program (PSDP), while almost 60 percent re-rolling and pipe manufacturing industries have closed due to shortage of gas and electricity.
The Chairman said that monthly expenditures stood at about Rs 4.5 billion, while the production had declined to Rs one billion in October 2008. "At this point in time owing to meagre funds management had the option either to shut down the mill or shed off the huge piled inventory stock by reducing sale prices to adjust and improve liquidity".
PS management preferred to protect the future of 17,000 employees by selling huge inventory, which was Rs 7 billion of finished goods and Rs 10 billion in raw material, he said. He claimed that lately things were improving and with the cut in prices the PS sales were increasing, which recorded Rs 3.8 billion January 2009.
The chairman admitted that during last few months PS had supplied products to all buyers without any calculation, and was unable to meet the transparency international conditions due to financial crisis. Therefore, Transparency has issued warning letter to the PS.
Mueen said that raw material input cost contributed 84 percent and long term generation contracts at high prices in 2004 and 2007 had surged the overall production cost. However, raw material prices of contracted raw material would be revised on April 1, after which, PS input cost would reduce substantially due to cut in the raw material prices on international front.
"We are also making efforts to incorporate clause in PPRA rules authorising any government department to negotiate with suppliers to adjust the contracted prices equivalent to deferential of current international prices of raw material and other consumables" he said.
At present in case of breach of contracts, suppliers can go for international arbitration in international chamber of commerce and may file a lawsuit against the PS, the chairman said. He said that management is taking several steps to overcome liquidity crisis and in this regard procurement of coal and raw material from local market is also under consideration.
"With slowdown of production from 90 percent to 75 percent, the mill is saving in gas, electric, and raw material costs, and at the same time we are doing maintenance of plant, which was long awaited" he said. He said that PS has also started using 5 percent local Sharrigh cooking coal in the plant. The price difference between local and imported coals is about 125 dollars to 400 dollars per ton.
He said that to cut down surplus content, the PSM is also procuring a desulphurisation plant to use more local coal as substitute of expensive imported coal. He said that recently the PS has approached Federal Board of Revenue for imposition of regulatory or antidumping duty on imported steel products, to protect PS. When he was asked about constant theft cases in the mills, he admitted that recently an attempt of theft had been detected. However, no action was taken against the culprits. He claimed that steel products, particularly billets, are being sold as per rules and regulation and nobody has been given special favour.
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