Steel sector still found in a shakeout

January 10, 2021 Business
Steel companies registered around 40 per cent less turnover this past year compared to 2019 as they were forced to market finished products in lower prices when confronted with low intake, according to industry insiders.

The millers even had to provide additional commission for the dealers in order to be sure that they had enough liquidity to survive the ongoing coronavirus pandemic.

Through the pre-pandemic period, the development expense of 60 grade MS rod stood at about Tk 58,000 per tonne.

"However in the April-June one fourth, the millers had to market it at Tk 50,000 to Tk 52,000 per tonne due to low demand, which prevailed until September-October," explained Md Shahidullah, secretary standard of Bangladesh Steel Producers Association.

The millers were compelled to market their finished steel for lower than the production cost so as to ensure liquidity.

Meanwhile, previously imported shares of raw materials had been exhausted after demand picked up in July, when construction on all the government jobs resumed, said Shahidullah, as well managing director of Metrocem Steel.

Besides, the cost of scrap steel and other recycleables used in the market rose $100 to $120 per tonne found in the international market because of a disruption in the global source chain due to Covid-19.

Millers at this point import scrap for approximately Tk 40,000 per tonne although it was Tk 30,000 through the pre-pandemic period, he added.

Manufacturers need to spend Tk 20,000 per tonne on the average to produce finished products, acquiring the production expense to Tk 60,000.

From this backdrop, the companies have no scope to create profit because they are dependent on imported recycleables.

The annual dependence on scrap steel is approximately 8 million tonnes, which only 25 % is collected locally as the remaining 6 million tonnes is imported.

But despite the price boost, demand is but to get momentum, Shahidullah said.

Echoing the same, SM Khorshed Alam, president of the Bangladesh Association of Building Industry (BACI), explained the price of MS rod heightened 25 to 30 per cent in November-December this past year.

"So, the government will include a good provision to modify the price with the current one in public areas procurement guidelines," he added.

Besides, the selling price could be reduced to an acceptable sum by adjusting tariff, value-added tax and advance income tax, according to the BACI chief.

Shahriar Jahan Rahat, deputy managing director of KSRM Group, said the steel industry had witnessed sharpened growth amid fierce competition through the pre-pandemic period.

The heightened competition was due to investment without general market trends and installing additional production capacity, which surpassed total consumption in the neighborhood market.

Makers also sold their finished items at an excellent discount to make enough cash to repay loans and preserve their factories operational through the two-month "general holiday".

Between March 26 and May 30, the federal government imposed a finish lockdown of all economic activities, including its production tasks, in a bid to curb the pass on of Covid-19.

This resulted in unhealthy competition in the domestic market as everyone wanted to sell off their stocks, Rahat said.

Companies had to provide commissions as high as Tk 1,500 per tonne to their dealers although it was Tk 1,000 to Tk 1,200 per tonne during normal times, he added.

Based on the deputy managing director, the market will require at least 3 to 4 years to recover by the losses faced in 2020.

The KSRM plans to set up its captive power plant to reduce energy and operational costs while also building efficiency within its existing manpower.

It will invest Tk 500 crore to create the 56 megawatt electricity plant, Rahat said. 

Small-scale steel mills suffered the many from the ongoing crisis due to too little orders and subsequent capital shortage.

Annual consumption rose 15 to 20 % from 2017 to 2019 although it was 10 % each year before that. Rod intake reached about 6 million tonnes in 2019 while the sector comes with an installed gross annual production capacity around 110 million tonnes.

The steel industry in Bangladesh will probably be worth Tk 55,000 crore.

There are about 40 active manufacturers with a combined capability to create nine million tonnes of steel a year. Of them, Abul Khair Metal, GPH Steel, BSRM and KSRM satisfy over fifty percent of the total annual demand of eight million tonnes.

"Like different sectors, the steel sector did not witness good times in 2020 as it was troublesome for the manufacturers to achieve 50 % of the sales aim for by the end of the entire year," said Manwar Hossain, president of Bangladesh Metal Mills Owners Association (BSMOA).

"Personally, I would be pleased to have reached 50 % of the target," he added.

Relating to Hossain's estimates, the sector's turnover will probably fall to Tk 33,000 crore this season while the marketplace size was Tk 55,000 crore in 2019.

Total consumption in 2020 was about 3.6 million tonnes although it was around 6 million tonnes in 2019.

The manufacturers also faced losses for having to run al less than their capacities.

Many factories had to use at below 50 % production capacity due to low demand, industry insiders said.

Besides, the suppliers are now facing a good shortage of recycleables as suppliers cannot supply metal scraps when the peak time started in November.

"The steelmakers' losses for the year amounted to around Tk 6,000 crore," Hossain said.

Tapan Sengupta, deputy managing director of Bangladesh Steel Re-Rolling Mills, said the metal sector was connected to the country's overall overall economy.

The economy faced a serious crisis as a result of Covid-19 fallout while another wave of infections has prevented advancement works from returning completely swing.

"So, the metal sector are certain to get better when the country's economy will come to be better," he added.

The government's infrastructure projects take into account 35-40 % of the full total steel consumption in Bangladesh, up from 15 % a decade ago.

If a steel factory can go at 60 to 70 % capacity, it ought to be able to maintain a break-even level.

Sengupta also said the price could increase further due to the price of steel scrap is increasing.

According to him, scrap is providing at $480 every tonne now while it was $270 in April.

"The cost of steel scrap rose as China is importing steel whereas the country had exported finished items prior to the pandemic. If China imports the scrap, nobody can declare how much the value increase," he said.

Manufacturers had to adjust the cost, causing the price to move up. However, the selling price continues to be at a tolerable level in Bangladesh in comparison to additional countries, Sengupta added.
Source: Thedaily Star

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