Time to focus on the re-rolling mill industry

THE re-rolling mill (RRM) industry in Bangladesh is one of the most important suppliers to the construction industry. Every square foot of construction requires 5-6 kg of rolled products. With the economy booming, (a growth rate of 5.7% per year for the past 15 years), and the construction industry in particular accounting for 9.2% of GDP, and growing at 8.0% per year, the scope and potential of the RRM is huge.
The RRM industry started emerging in the 1970s to meet the needs of the newly independent Bangladesh, and was followed in the early 1990s by the emergence of steel mills. Currently, there are nearly 100 steel mills, 250 RRMs, and 100 integrated facilities in Bangladesh. The total output capacity is 2.4 million tons per year.
Despite the growing global and domestic demand for steel products, the RRM industry in Bangladesh has not invested in improving the quality of products or expanding the production capacity. Most re-rolling mills are operating below optimal capacity due to constraints such as frequent power disruptions, low pressure gas supply and low quality and erratic supply of raw materials. Nearly 100 rolling mills are non-operational.
Factories look and think much like they did thirty to forty years ago; their focus is limited to domestic markets and basic low value products; business to business integration with global supply chains is non-existent; machinery, processes and technology are outdated and unreliable; consolidation remains low, and even medium size firms are few in number. Policy makers, civil society, and financial institutions need to focus their attention and encourage the sector to grow out of its inertia. Few donors and development agencies have ventured into the sector or come up with sustainable programs and results.
The industry faces many challenges, some intrinsic to the country as a whole, some specific to the RRM sector.

Bangladesh re-rolling mill industry
Most of the RRMs are small in size, with a capacity of 600-800 tons per month (tpm), and the steel mills are a little larger with 1200 tpm average capacity. Most of the rolling mills are located in Dhaka (Shyampur/Fatullah, Narayanganj and Tongi/ Gazipur) and Chittagong, and most of the steel mills and integrated re-rolling mills are around Chittagong.

Market analysis
With the positive global economic outlook, the steel industry worldwide is expecting an exponential growth in steel consumption in the near. It is estimated that:

• Steel consumption will rise rapidly in the next 10 years to reach a level of 140 million tons per year by 2020, of which 55% (77mt) will be long products.
• The past 10 years have experienced a 33.6% growth rate in global crude steel production.
• The international demand for steel is expected to grow by 5% everywhere.
• India is poised to achieve steel production of over 100 million tons annually by 2019.

How is Bangladesh positioned to deal with this opportunity?
Even with local demand high and global demand rising, the RRM industry in Bangladesh continues primarily to produce as it has for the past decade, without improving product or increasing capacity. This represents a huge loss of opportunity for Bangladesh, and it leaves the industry vulnerable to competition from imports in the future.
Export opportunity: The scope to export is evident. China, for example, has more than doubled export of steel products, and has turned into a net exporter of steel in the first half of 2006 from being a net importer in 2005. This demonstrates not only the growing global demand for steel but also the upcoming opportunity in the export market as China now begins to focus inwards -- an opportunity Bangladesh should not miss. Similarly, the Gulf countries are experiencing strong economic growth and are investing heavily in industry and infrastructure, leading to a shortage of steel in the Arabian Peninsula. Existing steel producers and re-rolling mills are forming joint ventures with large-scale investors for quick expansion to meet the massive demand. These joint ventures are expected to result in win-win cycles for the countries involved.
Bangladesh may be able to take advantage of this export opportunity, provided that the RRMs are able to produce the appropriate quality at the right price.
Recognising that optimal operation of the RRM sector is of paramount importance to the industrial and infrastructural growth of the country, IFC-SEDF has identified this as a focus sector in Bangladesh.
Based on an industry survey and field studies, IFC-SEDF has made the following four key recommendations for the RRM industry:

• Implement cost-reducing, energy-efficient modifications for the mills, for example, Recuperator for reduction of gas consumption and Modified burner nozzle for scale loss reduction.
• Identify product diversification opportunities to help move up the value curve, for example: manufacture quenched and tempered bars.
• Address the large, but ignored, export market.
• Collaborate efforts to overcome power/raw material constraints, for example: form networks which share the benefits of a communal generator.

Given the scope for growth, profitability and export, and also given the vulnerability to import substitution, RRM owners need to improve products and expand capacity quickly. This is very much the need of the hour for Bangladesh industry.

Rajeev Gopal is Coordinator: Value Addition to Firms, IFC.