ISLAMABAD: Due to lack of letters of credits (LCs) being opened, the domestic scrap shortage crisis is compounding and it is hitting domestic manufacturers drastically.

The steel industry is facing a severe crisis due to the shortage of raw material scrap, and the situation is going from bad to worse.

The local prices of scrap have jumped from 120,000 rps/ton to 200,000 rps/ton in just three weeks, causing many mills to shut down. Only 30 per cent of mills are barely operating at very low utilization rates due to the shortage of raw material scrap, and there seems to be no end in sight with rebar stocks of the country depleting in April.

Rebar manufacturers are being held hostage, and with the domestic scrap prices, rebar prices would easily cross over 325,000 rps/mt. Domestic scrap dealers, known locally as Kabaris, are taking advantage and holding mills hostage with pricing.

The shortage is particularly acute in the case of scrap imports, which are a critical component for the steel industry. In the second quarter of the current fiscal year (Q2FY23), scrap imports stood at 616,000 metric tons, a decline of 50 per cent from the same period last year (Q2FY22), when 1,235,000 metric tons were imported. This is the largest drop in scrap imports in the last two decades.

Industry experts have warned that this crisis will have a far-reaching impact, with 42 allied industries expected to be adversely affected and 7.5 million jobs at risk. “The steel industry is the backbone of the economy, and if we do not take action now to support this sector, the consequences will be dire,” said Wajid Bukhari, secretary general of PALSP.

Bukhari, has warned that the shortage of scrap will have a far-reaching impact on the steel industry which is considered the backbone of the economy.

He stated, “Due to the lack of availability of scrap, the domestic steel industry is being hurt drastically, and this will set back the country’s industrialisation severely. There will be defaults across the allied industry sector, causing a financial emergency as banking loans to the private sector will not be serviceable at record high interest rates.”

The PALSP has advised the government to implement an urgent scrap policy, like in India, to ensure timely availability.

The shortage of scrap has already caused many mills to shut down, and it is expected that there will be no rebar availability in April. Bukhari further added, “Joblessness and lawlessness would increase drastically as the closure of steel mills will have a disastrous domino effect.

The government needs to act urgently to open LCs and ensure timely availability of raw material scrap to prevent a complete collapse of the steel industry, which will have far-reaching economic and social consequences.”

Copyright Business Recorder, 2023