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Long Steel: Is the future as bright as it looks?

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May 28, 2021 (MLN): The Steel industry saw a sharp increase in demand, after recovering from the operational downtime incurred during the lockdown, as the construction cannot be done without the use of steel. Pakistan’s long steel manufacturing industry is one of oldest and most important industries in the country. Despite the recent disastrous impact of the pandemic on livelihood, the long steel industry was the one industry fortunate enough to secure a strong position by the end of 2020.

It is an industry which is largely fragmented.  Long steel sector consists of companies engaged in manufacturing and trading of Reinforced Concrete Steel Bars (Rebars), Girders, T, I and H Beams, angles and channels and primarily cater to construction industry. There are 10 major steel players listed onto the PSX, having almost 50% share in local sales.

Recently, AKD securities held a webinar on Pakistan’s long steel industry, where officials of four of Pakistan’s leading steel players came together to discuss the dynamics of Pakistan’s long steel industry with their respective company’s structure and way forward.

The session opened by the Chief Operating Officer (COO) of Mughal Steels Mr Shakeel Ahmed who highlighted the growth potential of the company. The market size of the Mughal is equal to 6 to 7MTs annually. The production capacity is equals to working capacity whereas installed capacity reached around 9MTs to 10MTs, he said.

During the session, he provided numbers of Pakistan’s long roll product consumption leading onto 19,20kg per capita and in region around 240-250kg per capita. According to him, if 1kg per capita increases, the industry could make 1-2MTs new capacity of steel.

Mughal steels past 9 months turnover went up to Rs40billion where copper exports made around Rs9-10billion. As per the COO, the turnover was due to the fact that company kept the mitigating risks in mind due to adverse economic changes and market/political risk and developed diversified product portfolio by making billets to supreme re-bars, girders, t-iron, G-60 re-bar and copper ingots. This also provided company the ability to cater and address different markets with long list of product lines, and having no issues while passing prices to international market.

As the conference moved ahead, panelist from Agha Steel Industries limited Mr. Kamran Ahmed took over the charge, where key insights were shed on companies’ production and expansion stating that the commercial production started in 2012 with an expansion plan in mind. Today as the company claims the first phase of expansion has completed.

In 2020 the company started sharing shares to general public through IPO. Further in the year, commencement of Mida installation and increase in market share was done for the future aspect.

“We believe in sustainability and profit is least important in this chain,” Kamran Ahmed CFO Agha Steel Ltd said.

For future, investing in education and skill development institutions, supporting steel making industries i.e.: Refractories, Electrodes, Tundish, Coke etc. and vision to export steel, were the major points shared by the management to look forward for. With regards to low GP margin in the Q1, companies showed positive hopes towards the Q2 for the improvement of it.

From Itefaq Iron Industries, CEO Shahzad Javed joined the conference where he brought up details regarding their company in consideration with the Long steel situation. In regards to his comments, the main business of the company is manufacturing of Iron Bars, girders and ancillary products. Today the company stands strong in providing structure and alloy steel in the form of billets and bars in all types of industries residential sector

The revenue drivers for the company are mainly the new policies introduced and the projects that company holds. Naya Pakistan Housing schemes and PSDP are all set to increase sales where as in projects, the company is selling pipelines to Mohammad Dam, Dassu Dam, Sukhi Kinari Dam, Maple leaf, Lime Light and etc. Pricing power is also a key for company’s revenue as stated by the CEO. Therefore, as per the predictions that Bar and Girders prices are expected to increase by 145000/- and 152000/-, there will be an increase in demand for the upcoming FY22, generating good revenues for the company.

Last but not the least, representing Amreli Steels, Fazal Ahmed (CFO) of the company took over the mic. Upon asked about the reason for not performing up to the mark, which was expected by many, the CFO exclaimed that due to the COVID situation at the end of last quarter, which is also the quarter that earns you the most, companies’ internal system was hurt big times but nonetheless, as by now the company is on stable grounds and performing up to the mark.

In the context of major drivers for FY22, company mentioned the continuation of construction packages as a stimulus where as per the data provided, 1017 new builders and developers have registered their schemes. 77% from North, 23% from South. Out of the 23% from South, 80% are from Karachi.

Further in the same year, the company looks forwards for low interest rates, stable PKR/$ parity outlook and GDP growth of more than 4%. Similarly, company also went ahead and gave out major drivers for FY23, where the key look forwards were, elections, GDP growth of more than 5% and the end of COVID-19.

In terms of the numbers, the rolling mill capacity of the company stands at 600,000 M.Tons annually whereas, the steel melting capacity (practical) reaches 500,000 MTs annually.

 The major key point that came out from the webinar was that the parameters are very strong and steady there is an immense growth potential for industry. Despite there could be a massive flow of demand that could arise from Naya Pakistan Housing Program, the aspirations are high. In contextualization if the construction demand coming from hydropower projects in the works fulfils its expectations, there could be substantial increase in demand of steel reaching up to 6MTs. Nonetheless steel manufacturers will have to substantially increase capacity to meet it.

 A lot will depend on the clarity and consistency of the Government’s policies, a conductive bossiness environment for entrepreneurs to invest in capacities manageable inflation and interest rates. Furthermore, PKR vs USD and GDP growth rate will also play a vital role and eventually a lot will depend on how global handling of Covid-19 is done which could help in securing supply chains, freight rates and commodity prices across the world.

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Posted on: 2021-05-28T23:10:00+05:00

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