Recovery still a long way off for steel makers

A return to normalcy for Bangladesh's steel manufacturing sector is still a far cry as factories have been forced to limit their operations due to declining demand amid the ongoing coronavirus pandemic, according industry insiders.

Most of the steel makers are running below 50 per cent capacity and selling 60-grade mild steel (MS), commonly used in construction, at prices lower than production cost in order to stay afloat during this difficult time, they said.

Besides, manufacturers are facing a raw material shortage as the supply of steel scraps is inadequate despite a fall in demand.

As much as 90 per cent of the raw materials used by the sector is imported from the US, UK, Canada, Italy and Australia, all of whom are yet to fully resume their economic activities since declaring nationwide shutdowns in March to contain the coronavirus outbreak.

"Over the last six months, the sector's losses have amounted to around Tk 6,000 crore," said Manwar Hossain, president of the Bangladesh Steel Mill Owners Association (BSMOA).

"We are facing losses due to low demand and a 15 per cent price hike for steel scraps in the global market," he added.

Hossain, also managing director of the Anwar Group of Industries, went on to say that unhealthy competition in the domestic market has emerged as everybody wants to make a quick buck off their finished products.

The price for 60-grade MS rods has declined by about 15 per cent at the factory level, hitting Tk 53,500 per tonne while it was Tk 61,500 per tonne during the pre-pandemic era.

Manufacturers have been compelled to sell at low prices in order to make up operational costs, the managing director said.

However, this is not a suitable model for the long run and may cause many businesses to collapse.

Besides, incessant rain for the past few months has damaged previous stocks of finished products and there is no taker for rusted metal, he added.

Bangladesh Bank should play a more supportive role now by increasing the repayment tenure for loans from the stimulus packages from the existing 5 years to 12 in order to help the industry recoup its losses.

In regards to the stimulus packages, Hossain also said it has been rather ineffective as the country's lenders only provide 30 per cent of a company's existing working capital from the fund, which is insufficient to run a factory.

"We need additional working capital to run our business for a long time and recover our losses," he added.

The managing director went on to suggest that the government could bring in more foreign direct investment for infrastructure development under the public private partnership model to reduce the burden among tax payers to pay back the debt.

By doing so, both the construction and steel sectors will recover hand in hand.

The steel industry in Bangladesh is now worth Tk 55,000 crore, according to market players.

Tapan Sengupta, deputy managing director of BSRM, said the country needs to improve its ease of doing business ranking in order to help the economy recover rapidly.

The National Board of Revenue blocked over Tk 4,000 crore from the steel sector as advance income tax over the past 10 years but even now, it has not paid back the millers.

"Our capital has been blocked but we are paying interest against the blocked capital," he said, adding that If the blocked capital is returned, the sector could utilise the money to survive the pandemic.

"Neither the government nor the steel makers are benefitting from the blocked capital. Our liabilities are increasing continuously," said Sengupta said.

In light of the situation, Sengupta urged for a reduction in advance income tax at the import stage.

He said tax deductions at source should not be considered as a minimum charge so that the steel industry can get some breathing space.

Despite being a capital-intensive sector with very low profit margin, the steel makers have to pay a minimum tax of Tk 1,150 for each tonne of steel produced, which has made it impossible to make any profit now, he said.

He now fears that the steel industry could collapse after suffering continues losses due to the pandemic.

Over the past few years, the country has seen the establishment of a good number of new steel and re-rolling mills that use state-of-the-art technologies and churn out world-class products, Sengupta said.

Earlier, Md Shahidullah, secretary general of the Bangladesh Steel Manufacturers' Association, said Bangladesh has about 40 active factories, which have a combined capacity to produce nine million tonnes of steel annually.

Of them, Abul Khair Steel, GPH Steel, BSRM and KSRM meet more than half of the annual domestic demand of about eight million tonnes.

"We have been left in a pickle as the pandemic has broken the supply chain for all the countries from where we source our raw materials," said Shahidullah, also managing director of Metrocem Steel.

The government's infrastructure projects account for 35 to 40 per cent of the total steel consumption in Bangladesh, up from 15 per cent a decade ago.

If a steel factory can run at 60 to 70 per cent capacity, it should be able to maintain a break-even point, he said.

However, the country's steel makers are still unable to take their production levels over 40 per cent at this point, the managing director added.