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Siddiqsons Tinplate Ltd: Not far from Blossoming

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December 08, 2020 (MLN):  Siddiqsons Tinplate Limited (STPL) which is the first and only tinplate manufacturer in Pakistan with production capacity of 120,000 tons per annum, is on the verge of turnaround as the reliance on imported raw material has substantially reduced after the company entered into a contract with Aisha Steel Mills Limited (ASL) for monthly supply of 2,500-3,000 tons of secondary grade Tin Mill Black Plate (TMBP).

A report by Fortune Securities highlights that after entering into the contract with ASL, the company is now company is now operating at nearly 50% utilization and is likely to sell around 15,000 tons (including both non-food and food grade) quarterly.  

Historically, the company has operated at low utilization levels (20-25%) due to difficulties in procurement of major raw material (TMBP).

For the unversed, the company was established in 1999 in collaboration with SOLLAC of France and Mitsubishi Corporation of Japan.

According to the report, domestic tinplate market is somewhere between 85,000-100,000 tons per annum which is equally divided into two segments that is i) premium grade tinplate majorly used in packaging of cooking oil, fruits, sea food and other edibles, and ii) secondary grade tinplate which is usually used in packaging of non-edibles including paint and lubricants

Globally, most of the tinplate manufacturers are vertically integrated with their own CRM mills to produce TMBP.

TMBP itself is a difficult raw material to procure, particularly on an import-based model. This is because of the three major reasons. First is, for each different tinplate product, different thickness of TMBP is required and it is financially unrealistic to maintain stock of all thicknesses. Second reason is, since most global and regional players are vertically integrated, most of the TMBP is consumed in-house, leaving little surplus to be exported.

The third major reason which makes TMBP a challenging raw material to procure is that importing TMBP and then producing it locally is expensive as well as time consuming for STPL which shoves most of the domestic patrons to purchase imported tinplate directly.

Only local CRC manufacturers such as International Steel Limited (ISL) and Aisha Steels Limited (ASL) are capable of producing secondary grade TMBP but they were not interested in producing it until their expansions came online making the CRC market oversupplied, the report said.

Following surplus capacity in the CRC market, ASL has now started producing TMBP in a toll manufacturing setup, exclusively for STPL. As pe the report, ASL will be importing HRC for STPL and would charge USD150/ton (PKR 24,300 @ PKR162/USD) to convert it into the desired thickness TMBP. The contract is for around 2,500-3,000 tons per month and is currently negotiated until 4QFY21.

Meanwhile, it is pertinent to mention here that STPL was not catering to the secondary grade non-edible segment before the ASL procurement agreement.  The report underlines that STPL would continue to supply around 2,000 tons/month to the edible segment market by using imported primary grade TMBP in addition to 3,000 tons/month to non-food secondary grade segment by procuring TMBP from ASL.

This contract with ASL is particularly beneficial for the company as the lead time of importing TMBP is catered to and the raw material is readily available at the desired thickness level, the report added.

In addition to the above-mentioned contract, another game changer for the company is the likely commissioning of the long due CRM (Cold rolled mill) plant. In order to remain competitive and keep utilization at optimum levels, STPL had planned to bring a CRM plant with 200k’tons capacity in 2018. However, supplier issues had resulted in delays in the project which was put under re-negotiation phase in Apr’20. The report indicates that the issues related to the plant are near resolution and the plant is expected to come online by 4QFY21.

The commissioning of CRM plant would benefit the company in three ways as it will allow the company to cater fully to the edible segment tinplate market and operate at higher utilization levels, it will make the product competitive in the exports market and even if the company decides on utilizing 100% of the tinplate plant capacity, it would still have 80,000 tons of surplus CRC capacity that could likely be sold in domestic market which would further complement earnings for the company, the report underlined.

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Posted on: 2020-12-08T17:24:00+05:00

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