The steel sector faces a 40% fall.
The management of Amreli Steels claims that rising energy costs and the super tax affected the company’s growth.
ISLAMABAD:
On Friday, the management of Amreli Steels Limited (ASTL) stated that the local steel industry has suffered a downturn of roughly 40 percent due to the floods in the most recent quarter.
During an internal company briefing, the management of ASTL noted that a number of mills had recently ceased operations due to the high cost of scrap in addition to other economic issues. In the fourth quarter of fiscal year 22, the price of scrap grew globally by approximately 20 percent, reaching $640 per tonne.
In addition, margins were impacted negatively by the rise in energy prices and Fuel Charge Adjustments (FCA), which were respectively Rs9.5 per kwh and Rs11 per kwh in the months of May and June. ASTL’s bottom line was negatively impacted due to the super tax expense of Rs509 million as well as the FCA charges of PKR 834 million.
However, the business is optimistic that demand would increase following the completion of flood recovery efforts and the planned rehabilitation projects that are now awaiting approval from the Sindh Building Control Authority (SBCA). Despite a decrease in quantities of 2% to 371,000 tonnes, the company reported their highest-ever profit of Rs1.8 billion during the first nine months of FY2022. This record-breaking profit was attributable to skyrocketing pricing. However, due to an increase in the price of international scrap as well as greater costs associated with RLNG, gross margins experienced a loss of roughly 0.4%.
JS Global Steel Sector Analyst Waqas Ghani Kukaswadia remarked in an interview with The Express Tribune, “Due to the floods, most steel producers reported roughly a 40-50% reduction in volumes in the first two months of the outgoing quarter.”
“The weaker demand put pressure, as well, on the pricing power of steel companies,” the author writes. On the other hand, there is reason to believe that demand will build up some steam in the months to come,” he added.
According to Tahir Abbas, Head of Research at Arif Habib Limited (AHL), “The decline in demand seen is due to the overall slowdown in construction activity nationwide following record high interest rates and inflation, plus the soaring costs of input.” This statement was made after record high interest rates and inflation, as well as the rising cost of inputs.
For your information, the sales of long steel are directly tied to the sales of cement. Therefore, the pattern of cement sales across the nation is a realistic indication of the trend in the steel industry,” he went on to say.
During this time, Syed Wajid Bukhari, the General Secretary of the Pakistan Association of Large Steel Producers (PALSP), stated that “in the last quarter of the fiscal year 2021-22, there were no releases in the Public Sector Development Program (PSDP) budget.”
Under the Public Sector Development Program, the government has set aside Rs800 billion in the federal development budget for the financial year 2022-2023. The government has drastically reduced the amount of money spent on development thanks to an adjustment that was made to the release strategy of the PSDP 2022-23 funds through the Finance Division Notification No. F. 3(I)FO/2022-23. This reduction brought the amount of development funds that were made available for the first quarter down from 20% to 10%, which equates to Rs. 80 billion out of a total of Rs. 800 billion for the PSDP. According to Bukhari, the PSDP did not get any new funding during the final three months of the fiscal year 2021-2022.
“This is the first time in seventy-five years that the government has been forced to redirect all funds to finance the massive budget deficit,” he said. He went on to say that “As a result, all of the government projects have come to a halt,” adding that “This is the first time that the government has been forced to redirect all funds to finance the massive budget deficit.”
