The sharp upswing in the prices of different categories of steel products in the country over the past couple of weeks has assumed almost crisis dimensions. The latest hike to stun the market is the rise in the price of mild steel bar by nearly Rs 6,000 a ton!
A few days earlier, Pakistan Steel had announced an increase in the price of its hot-roll coil from Rs 32,200 to Rs 33,350, and that of billets from Rs 26,105 to Rs 27,255 per ton.
The phenomenon is being projected as a knock-on effect of the soaring steel prices in the international market. However, even if it is accepted that the price upswing is indeed a result of international market fluctuations, a hike of 20 percent in the mild steel bar price and 10 percent in the price of hot-roll coil and billet seems to substantiate the perception as if the new management of Pakistan Steel was only waiting for the privatisation process to be over before it revised the rates.
Meanwhile, the skyrocketing of billet prices in international market is believed to have sidelined the local importers, as not even a single ship has anchored at Karachi port during the past one and a half month. However, analysts believe that some of the steel manufacturers and dealers on an average pocket from Rs 4000 to Rs 6000 per ton in unfair additional premium from the public on items supplied to them by Pakistan Steel on much lower prices than the international market.
A Recorder Report has quoted market sources as saying that the re-rolling mills are exploiting the local market needs to increase the prices despite the fact that they are now using gas instead of furnace oil.
They have also been given numerous incentives in sales tax and excise duty. Further, analysts have cited the middleman's manipulative role as one of the factors that has resulted in the increase in prices of different steel products.
It is believed that the aggregate hike over the last 28 days has amounted to almost $25 per ton. Hot-roll coil is used almost in every industry in Pakistan, including the pipe manufacturing industry. It is also used in the fabrication of water and oil tankers.
Pakistan's domestic demand for steel billet stands at around 500,000 tonnes annually, of which some 200,000 tonnes are produced by Pakistan Steel while the remaining gap is filled by importing the commodity from different countries including Russia, South Africa, Ukraine and Egypt. It is true that global steel prices have witnessed an upward swing largely because of the "China factor," which has played a critical role in the rise of steel prices as well as those of numerous raw materials.
The Asian industrial giant needs these raw materials to keep the wheels of its huge manufacturing sector running. According to an estimate, about 70 percent of raw material supplies in the global market are lifted by China, which has stopped export of its raw materials in view of its burgeoning domestic requirements.
Although the "China factor" may have been instrumental in pushing up rates of raw materials and finished products in the global market, this cannot be cited as the main cause of price hikes like the one made by Pakistan Steel. The rates of its hot-rolled and cold-rolled products have witnessed large swings in the past as well, which the market analysts believe were not entirely justified. One way to provide a cushion to the consumers would be to effect tariff cuts.
A similar crisis last year had prompted the government to cut import tariff on rollable scrap from $430 per tonne to $330 per tonne. Such measures can surely help the consumers absorb the impact of price hikes. Analysts believe that Pakistan will not be able to sustain its long-term economic and industrial growth rate without adding three to four million tonnes to its steel manufacturing capacity.
Incidentally, global steel trade constitutes about 60 percent of the overall international trade, and Pakistan figures almost nowhere in the global context. The situation can be salvaged by simultaneously increasing our production and keeping the prices low, to give our products a competitive edge in the local and international markets.
Looked at purely in the domestic perspective, such wildcat rate revisions by Pakistan Steel will not only have an adverse impact on our construction industry but also on the re-rolling mills as well. Pakistan Steel has often increased prices of its products in the past on the ground that the rate of iron ore and other crucial inputs in the international market had gone up.
But now being the sole monopoly in the private sector, it will have to take steps to protect the larger public interest. Before its hand-over to the private sector, it was proposed that the government should constitute a regulatory body to keep a firm check on steel prices in the country.
The government should do this now to prevent a further rise in prices of PS products. The Monopoly Control Authority can also be assigned this task. A regulatory role by the government is absolutely essential.