Steel makers want policy support for faster recovery

Bangladesh's steel industry is yet to recover from the losses incurred due to disruptions in the supply chain brought about by the ongoing coronavirus pandemic while producers are bracing for new challenges, according to industry insiders.

However, the country's steel makers do not seek financial assistance but instead they want policy support from the government to sail through this difficult time, they said.

These comments came during a webinar styled, 'future challenges of Bangladesh steel industry and the way forward', organised by The Daily Star.

The programme was broadcast live on The Daily Star's Facebook page yesterday.

Despite being a highly capital-intensive industry, the covid-19 outbreak affected the country's steel sector far worse than other heavy industries, said Manwar Hossain, chairman of the Bangladesh Steel Manufacturers' Association.

Hossain, also the managing director of Anwar Group which owns Anwar Ispat, went on to say that if his factory remains closed, overheads reach up to Tk 70 lakh for each day.

During the peak pandemic period, most steel manufacturers ran at only 30 to 35 per cent capacity but even then not one factory went for job cuts or layoffs, the association chairman said.

The steel sector is yet to recover from losses as it is facing new and dynamic challenges, Hossain said.

When the economy began recovering since May following a two-month lockdown, flooding set the industry back once again, he added.

Following the Covid-19 outbreak, the import of various raw materials, such as scrap metal, from countries like the US were badly disrupted.

This led to a $50-55 increase in the cost of raw materials while steel prices decreased by 15 per cent over the last six or seven months. Moreover, a huge quantity of scraps that were stored under open the sky rusted in the monsoon, Hossain added.

Fearing that the sector may not fully recover any time soon, he urged everyone present to be patient and remain prepared.

This crisis is not exclusive to Bangladesh and so the country's recovery will come alongside global recovery, he said.

However, while saying that the government has been very proactive in problem solving for the steel sector, Hossain sought special attention from banks for this highly capital-intensive industry.

Tapan Sen Gupta, deputy managing director of the BSRM Group, urged the government to start spending more on the construction sector to make it vibrant so that all related industries would be active as well.

"You have to make the construction sector vibrant and create demand. When demand grows, the industry will run at full capacity," Gupta said.

If there is adequate demand, the industry can run and they can sell the products and their cash flow will automatically be improved.

"We are using recycled materials, all of which come from developed countries. Now, developed countries are badly affected by the pandemic and so material generation decreased at an extraordinary rate," he added.

At the same time, since many governments, like the one in China, provided substantial stimulus packages to keep their construction sectors vibrant, they are importing huge amounts of billet while their growing demand has led to a tremendous price hike for raw materials.

The price of raw materials increased by $60-80 but on the other hand, the cost of finished products has not gone up, leading to the erosion of working capital, Gupta said.

While mentioning that the steel industry is a capital-intensive sector with very low profit margins, the deputy managing director informed that they have to pay a minimum tax of Tk 1,150 for each tonne of steel produced, which eclipses any potential profit they can make at this time.

To adjust to this minimum tax, producers need to make a profit of Tk 5,000 per tonne but currently, most factories cannot even turn a Tk 1,000 profit.

"We are not earning but our liabilities are increasing continuously," he said.

In light of the situation, Gupta urged for a reduction in advance income tax at the import stage and tax deductions at source to not be considered as a minimum charge so that the steel industry gets some breathing space.

Md Shahidullah, managing director of Metrocem Group, said if a steel factory can run at 60 to 70 per cent capacity, it should be able to maintain a break-even point.

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

Considering the current high price level for raw materials, the price range for finished products should be around Tk 60,000 to Tk 65,000 per tonne but at present, products are being sold in the Tk 50,000 to 55,000 ranges. 

Dealers and users are now failing to pay regularly for their previously purchased finished products either, Shahidullah said.

In regards to the supply chain disruption, many countries with which letters of credit were opened for purchasing raw materials have been unable to meet Bangladesh's requirements and so new sources should be sought, according to the managing director.

Shahidullah also urged the banking sector to come forward with an open mind to support the steel industry and for an extension on the existing five-year term loan scheme to 12 years to help reduce the burden of instalments.

Although the country's steel sector is mostly import oriented for raw materials, tax barriers in the import process are too high, Shahidullah said, while underscoring the need to relax such barriers imposed by the National Board of Revenue.

Abu Sayem Chowdhury, deputy managing director of Bayezid Steel, said the demand for steel from the private sector is very low as the companies affected by the pandemic are not going for new investments or new projects.