July 12, 2023 (MLN): Flat steel sector could stand as a key beneficiary owing to the removal of import restrictions which were included as a key policy measure in the latest long-standing staff-level agreement with the IMF, the latest Sherman Securities Limited report highlighted.
To recall, the flat steel market is mainly dominated by auto-mobile and construction (combined share of nearly 65-70%) while white goods and agricultural demand contribute the rest, it noted.
Import restrictions, economic slowdown dented flat steel volumes in FY23 Being one of the major drivers of domestic flat steel demand, offtakes by auto assemblers remained dismal during FY23 owing to import restrictions, particularly for being a non-essential sector.
As per SBP data, CKD imports during 11MFY23 stood at $0.6 billion, down by 66% compared to $1.65bn in 11MFY22.
Moreover, on a monthly basis, the average CKD import bill has dropped from $146 million in FY22 to $50m in FY23 (down by 76% from its peak of $211m in March 2022).
This has resulted in demand destruction/suppression for the domestic flat steel players, the report highlighted.
Moreover, on the back of high-interest rates, rising prices (due to the pass-on of higher input costs), lower disbursement under the PSDP, and floods, construction activities have also remained under pressure during FY23.
Additionally, the production of white goods also witnessed a sharp decline in 11MFY23 (around 30-40% as per LSM data), weighing further on the flat steel demand.
To note, International Steels Limited (PSX: ISL) posted a 70% YoY decline in PAT in 9MFY23, worth Rs1,58 billion as compared to Rs5.36bn in the same period last year (SPLY).
Meanwhile, Aisha Steel Mills Limited (PSX: ASL) posted a significant loss of Rs2.15bn versus a profit of Rs5.14bn in SPLY.
