Analysis of Steel Industry in Pakistan

Steel Industry in Pakistan A Brief Analysis

Submitted by: CHOUDHRY JAWAD UR REHMAN 29/07/2010

A Brief Analysis of the Steel Industry in Pakistan

APPENDIX

3

A Brief Analysis of the Steel Industry in Pakistan

Introduction.........................................................................5 • Steel.....................................................................................................................6 • Significance of Steel Industry in Economic Growth.........................................6 • Steel Recycling....................................................................................................7 Production Process...............................................................8 • Basic Steelmaking Process.................................................................................9 • Various Steel melting processes.......................................................................10 o Electric arc Furnace.............................................................................10 o Bessemer method..................................................................................10 o Open Hearth method............................................................................10 o Basic oxygen method............................................................................10 • Raw materials...................................................................................................12 • Types of Steel Mills...........................................................................................14 o Integrated mill......................................................................................14 o Mini mill................................................................................................14 The Consumption of Steel in everyday commodities and its uses ..........................................................................................15 • Uses...................................................................................................................16 • Types of Steel and pertinent uses:....................................................................16 o Long steel..............................................................................................16 o Flat carbon steel...................................................................................16 o Stainless steel........................................................................................16 Industry Overview and Global Perspective............................17 • China & India emerges as Iron Fists..............................................................18 • Global steel industry trends..............................................................................19 • List of countries by steel production................................................................20 • List of steel producers by Companies: Worldsteel top producers 2009..........24 • World Steel in Figures 2010.............................................................................25 • May 2010 Crude Steel Production Figures.....................................................25 • Global Steel Forecasts: WorldSteel Short Range Outlook.............................27 Historical Analysis of Steel Industries in Pakistan.................28 • Historical Analysis of the Steel Mill Projects in Pakistan..............................29 • Steel Mills in Private Sector.............................................................................30 • Pakistan Steel Production, Consumption & Growth Potential......................36 • Comparative Imports of Metal Group during July-March, 08-09 & 09-10...37 • Government’s Role: Tariffs and taxes.....Error: Reference source not found9 • Auxiliary Industries..........................................................................................40 • SWOT analysis..................................................................................................41 3

A Brief Analysis of the Steel Industry in Pakistan o Strengths:..............................................................................................41 o Weaknesses:..........................................................................................41

•

•

o Opportunities:.......................................................................................42 o Threats:.................................................................................................42 Pakistan Steel Mills Factor Conditions and Issues.........................................43 o Infrastructure.......................................................................................43 o Raw Materials.......................................................................................43 o Labor:....................................................................................................44 o Technology............................................................................................44 o Utilities:.................................................................................................45 o Environmental Issue............................................................................45 Recommendations.............................................................................................46

Ship breaking & Steel Scrap industries.................................47 Future Prospects................................................................50 • Extracting domestic Iron-Ore Reserves...........................................................51 • Al-Tuwairqi Steel Mills....................................................................................52 Bibliography.....................Error: Reference source not found53

3

A Brief Analysis of the Steel Industry in Pakistan

INTRODUCTION: A WORD ABOUT “STEEL” AND IT’S SIGNIFICANCE IN ECONOMIC GROWTH

Steel 3

A Brief Analysis of the Steel Industry in Pakistan

Steel is an alloy of iron and carbon (containing carbon content between 0.2% and 2.1% depending on the grade). Apart from carbon, various other alloying elements are used, such as manganese, chromium, vanadium, and tungsten. Carbon and other elements act as a hardening agent, preventing dislocations in the iron atom crystal lattice from sliding past one another. Varying the amount of alloying elements and form of their presence in the steel (solute elements, precipitated phase) controls qualities such as the hardness, ductility, and tensile strength of the resulting steel.

Significance of Steel Industry in Economic Growth

The steel industry is often considered to be an indicator of economic progress, because of the critical role played by steel in infrastructural and overall economic development. The volume of steel consumed has been the barometer for measuring development and economic progress. Whether it is construction or industrial goods, steel is the basic raw material. However with the advancement in technology, lighter metals and stronger alloys have been developed. Plastics and synthetics have replaced steel in many areas. Still, “Steel” today is one of the most common materials in the world, with more than 1300 million tons produced annually. It is a major component in buildings, infrastructure, tools, ships, automobiles, machines, appliances, and weapons.

3

A Brief Analysis of the Steel Industry in Pakistan

Steel Recycling

Steel is 100% recyclable, and because it maintains its properties through successive product cycles without a loss of quality, it can be recycled an unlimited number of times. It is easy to handle and separate from other materials in the recycling stream because of its natural magnetic properties. For example, a recent world survey of “steel can” recycling found an average recycling rate of 63%, with some countries reporting rates in excess of 85%. It is generally estimated that the recycling rate of automotive steel is also very high, with the USA consistently reporting grates over 90% for the last 10 years. Steel that is in use today will be recovered, processed, and used again by future generations. Indeed steel is the most recycled material in the world. IISI statistics show that 451.7 mmt were collected and returned in 2004. This means that 42.7% of total world crude steel produced in 2004 was made from recycled steel. Despite of the fact that Steel is 100% recyclable, the actual percentage appears low because a large proportion of steel products (such as buildings, bridges, and cars) have long life cycles. There is not enough recycled steel to meet society’s increasing demand for steel. Demand for steel is 50% greater today than 10years ago, so current steel production requires still iron ore. Thus Demand for Steel is met through the combined use of recycled steel as well as iron ore. Both primary and secondary raw materials are necessary to further the industry’s economic, environmental, and social sustainability performance. Recycled steel is a very valuable secondary raw material. A dedicated infrastructure exists worldwide to ensure the most efficient use of this quality commodity, which is internationally traded and used today. It is cheaper to recycle steel than to mine iron ore and manipulate it through the production process to form new steel. Steel does not lose any of its inherent physical properties during the recycling process, and has drastically reduced energy and material requirements compared with refinement from iron ore. There is often very little waste produced during construction, and any waste that is produced may be recycled.

3

A Brief Analysis of the Steel Industry in Pakistan

PRODUCTION PROCESS

3

A Brief Analysis of the Steel Industry in Pakistan

Basic Steelmaking Process:

It is produced in a two-stage process:

1. First, iron ore is reduced or smelted with coke and limestone in a blast furnace, producing molten iron which is either cast into pig iron or carried to the next stage as molten iron.

2. In the second stage, known as steelmaking, impurities such as sulfur, phosphorus, and excess carbon are removed and alloying elements such as manganese, nickel, chromium and vanadium are added to produce the exact steel required. Steel mills turn molten steel into blooms, ingots, slabs and sheet through casting, hot rolling and cold rolling. With the invention of the Bessemer process in the mid-19th century, steel became an inexpensive mass-produced material. Further refinements in the process, such as basic oxygen steelmaking, further lowered the cost of production while increasing the quality of the metal.

3

A Brief Analysis of the Steel Industry in Pakistan

Various Steel melting processes:

Electric high-frequency furnace and crucible processes Electric arc Furnace Bessemer method Open Hearth method Basic oxygen method

3

A Brief Analysis of the Steel Industry in Pakistan

Many modernized Steel Mills now Integrated Route for Steel Making:

utilize

an

Raw materials The ores used in making iron and steel are iron oxides, which are compounds of iron and oxygen. The major iron oxide ores are

3

A Brief Analysis of the Steel Industry in Pakistan 1. 2. 3. 4.

Hematite, which is the most plentiful, Limonite, also called brown ore, Taconite, and Magnetite, a black ore.

Iron making furnaces require at least a 50% iron content ore for efficient operation, also, the cost of shipping iron ores from the mine to the smelter can be greatly reduced if the unwanted rock and other impurities can be removed prior to shipment. This requires that the ores undergo several processes called "beneficiation." These processes include crushing, screening, tumbling, floatation, and magnetic separation. The refined ore is enriched to over 60% iron by these processes and is often formed into pellets before shipping. The three raw materials used in making pig iron (which is the raw material needed to make steel) are the processed iron ore, coke (residue left after heating coal in the absence of air, generally containing up to 90% carbon) and limestone (CaCO 3) or burnt lime (CaO), which are added to the blast furnace at intervals, making the process continuous. The limestone or burnt lime is used as a fluxing material that forms a slag on top of the liquid metal. This has an oxidizing effect on the liquid metal underneath which helps to remove impurities. Approximately two tons of ore, one ton of coke, and a half ton of limestone are required to produce one ton of iron.

There are several basic elements which can be found in all commercial steels: Carbon is a very important element in steel since it allows the steel to be hardened by heat treatment. Only a small amount of carbon is needed to produce steel: up to 0.25% for low carbon steel, 0.25-0.50% for medium carbon steel, and 0.50-1.25% for high carbon steel. Steel can contain up to 2% carbon, but over that amount it is considered to be cast iron, in which the excess carbon forms graphite. The metal manganese is used in small amounts (0.03-1.0%) to remove unwanted oxygen and to control sulfur. Sulfur is difficult to remove from steel and the form it takes in steel (iron sulfide, FeS) allows the steel to become brittle, or hot-short, when forged or rolled at elevated temperatures. Sulfur content in commercial steels is usually kept below 0.05%. A small quantity of phosphorus (usually below 0.04%) is present, which tends to dissolve in the iron, slightly increasing the strength and hardness. Phosphorus in larger quantities reduces the ductility or formability of steel and can cause the material to crack when cold worked in a rolling mill, making it cold-short. Silicon is another element present in steel, usually between 0.5-0.3percent. The silicon dissolves in the iron and increases the strength and toughness of the steel without greatly reducing ductility. The silicon also deoxidizes the molten steel through the formation of silicon dioxide (SiO2), which makes for stronger, less porous castings.

3

A Brief Analysis of the Steel Industry in Pakistan

Another element that plays an important part in the processing of steel is oxygen. Some large steel mills have installed their own oxygen plants, which are located near basic oxygen furnaces. Oxygen injected into the mix or furnace "charge" improves and speeds up steel production. Steel can be given many different and useful properties by alloying the iron with other metals such as chromium, molybdenum, nickel, aluminum, cobalt, tungsten, vanadium, and titanium, and with nonmetals such as boron and silicon.

Types of Steel Mills:

INTEGRATED MILL: Integrated mills are large facilities that are typically only economical to build in 2,000,000 ton per year annual capacity and up. Final products made by an integrated plant are usually large structural sections, heavy plate, strip, wire rod, railway rails, and occasionally long products such as bars and pipe.

3

A Brief Analysis of the Steel Industry in Pakistan

An integrated steel mill has all the functions for primary steel production:

• • • • •

Iron Making (conversion of ore to liquid iron), Steelmaking (conversion of pig iron to liquid steel), Casting (solidification of the liquid steel), Roughing Rolling/Billet Rolling (reducing size of blocks) Product Rolling (finished shapes).

Because of the energy cost and structural stress associated with heating and cooling a blast furnace, typically these primary steelmaking vessels will operate on a continuous production campaign of several years duration. Even during periods of low steel demand, it may not be feasible to let the blast furnace grow cold. Due to the large employment of integrated plants, often governments will financially assist an obsolescent facility rather than take the risk of having thousands of workers thrown out of jobs.

MINI MILL: A mini-mill is traditionally a secondary steel producer. Usually it obtains most of its iron from scrap steel, recycled from used automobiles and equipment or byproducts of manufacturing. A typical mini-mill will have an electric arc furnace for scrap melting, a ladle furnace or vacuum furnace for precision control of chemistry, a strip or billet continuous caster for converting molten steel to solid form, a reheat furnace and a rolling mill. Often a mini-mill will be constructed in an area with no other steel production, to take advantage of local resources and lower-cost labor. Mini-mill plants may specialize, for example, making coils of rod for wire-drawing use, or pipe, or in special sections for transportation and agriculture. Capacities of mini-mills vary; some plants may make as much as 3,000,000 tons per year, a typical size is in the range 200,000 to 400,000 tons per year, and some old or specialty plants may make as little as 50,000 tons per year of finished product. Since the electric arc furnace can be easily started and stopped on a regular basis, mini-mills can follow the market demand for their products easily, operating on 24 hour schedules when demand is high and cutting back production when sales are lower.

3

A Brief Analysis of the Steel Industry in Pakistan

THE CONSUMPTION OF STEEL IN EVERYDAY COMMODITIES AND ITS USES

Uses Iron and steel are used widely in the construction of roads, railways, other infrastructure, applicances, and buildings.

3

A Brief Analysis of the Steel Industry in Pakistan 1. Most large modern structures, such as stadiums and skyscrapers, bridges, and airports, are supported by a steel skeleton. Even those with a concrete structure will employ steel for reinforcing.

2. In addition to widespread use in major appliances and cars. Despite growth in usage of aluminium, it is still the main material for car bodies.

3. Steel is used in a variety of other construction materials, such as bolts, nails, and screws.

4. Other common applications include shipbuilding, pipeline transport, mining, offshore construction, aerospace, white goods (e.g. washing machines), heavy equipment such as bulldozers, office furniture, steel wool, tools, and armour in the form of personal vests or vehicle armour.

Types of Steel and pertinent uses: Long steel    

As reinforcing bars and mesh in reinforced concrete Railroad tracks Structural steel in modern buildings and bridges Wires

Flat carbon steel   

Major appliances Magnetic cores The inside and outside body of automobiles, trains, and ships.

Stainless steel    

Cutlery Rulers Surgical equipment Wrist watches

3

A Brief Analysis of the Steel Industry in Pakistan

INDUSTRY OVERVIEW AND GLOBAL PERSPECTIVE

3

A Brief Analysis of the Steel Industry in Pakistan

China & India emerges as Iron Fists The global steel industry has been going through major changes since 1970. China has emerged as a major producer and consumer, as has India to a lesser extent. The economic boom in China and India has caused a massive increase in the demand for steel in recent years. Between 2000 and 2005, world steel demand increased by 6%. Since 2000, several Indian and Chinese steel firms have risen to prominence like Tata Steel (which bought Corus Group in 2007), Shanghai Baosteel Group Corporation and Shagang Group. ArcelorMittal is however the world's largest steel producer. In 2005, the British Geological Survey stated China was the top steel producer with about one-third of the world share; Japan, Russia, and the US followed respectively. In 2008, steel started to be traded as a commodity in the London Metal Exchange. However due to the recent economic recession, the steel industry faced a sharp downturn that led to many cut-backs at the end of 2008.

Global steel industry trends World Steel Production in the 20th Century Over the course of the 20th century, production of crude steel has risen at an astounding rate. Global steel production grew enormously in the 20th century from a mere 28 million tonnes at the beginning to 781 million tonnes at the end. Today it is fast approaching a production level of 800 million tons per year. In the mechanized world of today, it is difficult to imagine a world without steel. During the 20th century, the consumption of steel increased at an average annual rate of 3.3%. In 1900, the USA was producing 37% of the world’s steel. With post war industrial development in Asia that region now (at the turn of the century) accounts for almost 40%, with Europe (including the former Soviet Union) producing 36% and North America 14.5%.

3

A Brief Analysis of the Steel Industry in Pakistan

Steel consumption increases when economies are growing, as governments invest in infrastructure and transport, and build new factories and houses. Economic recession meets with a dip in steel production as such investments falter. If you were to overlay the above graph with a time sheet showing major historical events, the peaks and dips become meaningful. Note for example the peaks corresponding to the years of the two World Wars, followed each time by a dip, and soon after by strong climbs as the major economies recovered from the war and entered new periods of prosperity and growth, most notably in the 1950s and 1960s. However, steel consumption in the developed countries has reached a high stable level and growth has tapered off. After being in the focus in the developed world for more than a century, attention has now shifted to the developing regions. In the West, steel is referred to as a sunset industry. In the developing countries, the sun is still rising, for most it is only a dawn. Towards the end of the last century, growth of steel production was in the developing countries such as China, Brazil and India, as well as newly developed South Korea. Steel production and consumption grew steadily in China in the initial years but later it picked up momentum and the closing years of the century saw it racing ahead of the rest of the world. China produced 220.1 million tonnes in 2003, 272.2 million tonnes in 2004 and 349.36

3

A Brief Analysis of the Steel Industry in Pakistan million tonnes in 2005. That is much above the production in 2005 of Japan at 112.47 million tonnes, the USA at 93.90 million tonnes and Russia at 66.15 million tonnes.

World Crude Steel Production 1950 To 2009

Steel production:

1999

Geographical distribution

Steel production:

2009

Geographical distribution

3

A Brief Analysis of the Steel Industry in Pakistan

Steel Use:

1999

Geographical distribution

Steel Use:

2009

Geographical distribution

List of countries by steel production In 2007, total world crude steel production was 1,351.3 million metric tonnes (mmt). The biggest steel producing country is currently China, which accounted for 36.6% of world steel production in 2007. In 2008, in the majority of steel producing countries, output fell as the global recession began.

Exports

Top steel exporter in 2006[2] Rank Country Volume 1 China 51.7

Top steel net e Rank Cou 1

China

2

Japan

3

European Union 32.4

2 3

Japan Ukrain

4 5

Russia Ukraine

31.5 30.6

4

Russia

5

Brazil

6

Germany

29.2

6

Belgiu

7

Belgium

24.6

7

Germa

34.6

3

A Brief Analysis of the Steel Industry in Pakistan

Rank Country/Region 2007 — World 1,351.3 1 People's Republic of China 494.9 — European Union 209.7 Crude steel production (million tonness): 2 Japan 120.2 3 United States 98.1 4 Russia 72.4 5 India 53.1 6 South Korea 51.5 7 Germany 48.6 8 Ukraine 42.8 9 Brazil 33.8 10 Italy 31.6 11 Turkey 25.8 12 Taiwan 20.9 13 France 19.3 14 Spain 19.0 15 Mexico 17.6 16 Canada 15.6 17 United Kingdom 14.3

2008 1326.5 500.5 198.0 118.7 91.4 68.5 55.2 53.6 45.8 37.1 33.7 30.6 26.8 19.9 17.9 18.6 17.2 14.8 3 13.5

A Brief Analysis of the Steel Industry in Pakistan

List of steel producers by Companies: Worldsteel top producers 2009 The World Steel (World Steel Association) ranked the following top steel producers in 2009, by mmt (million metric tons of crude steel output). The Top 49 are listed like below:

Rank Company

mmt Rank Company

mmt

1

ArcelorMittal

77.5 26

Hyundai

8.4

2

Baosteel

31.3 27

CELSA

7.8

3

POSCO

31.1 28

Metinvest

7.4

4

Nippon Steel (1)

26.5 29

Techint

6.9

5

JFE

25.8 30

Erdemir

6.5

6

Jiangsu Shagang (2) 20.5 31

Metalloinvest 6.5

7

Tata Steel (3)

20.5 32

Kobe

5.9

8

Ansteel

20.1 33

Usiminas

5.6

9

Severstal

16.7 34

JSW

5.5

10

Evraz

15.3 35

Essar

5.5

11

U.S. Steel

15.2 36

voestalpine (7) 5.5

12

Shougang (4)

15.1 37

Salzgitter (5)

4.9

13

Gerdau

14.2 38

Hadeed

4.8 3

A Brief Analysis of the Steel Industry in Pakistan 14

Nucor

14.0 39

BlueScope

4.6

15

Wuhan

13.7 40

CSN

4.4

16

SAIL

13.5 41

Ezz

3.9

17

Handan

12.0 42

SSAB

3.6

18

Riva

11.3 43

Sidor

3.1

19

Sumitomo

11.0 44

Duferco

3.1

20

tdyssenKrupp (5)

11.0 45

Nisshin

3.1

21

Novolipetsk (6)

10.9 46

Vizag

3.0

22

IMIDRO

10.6 47

CMC

3.0

23

Magnitogorsk

9.6

48

AHMSA

3.0

24

China Steel

8.9

49

Dongkuk

3.0

25

Laiwu

8.9

World Steel in Figures 2010 In 2009 the five major steel producing countries were:

1. China 567.8 mmt 2. Japan 87.5 mmt 3. India 62.8 mmt 4. Russia 60.0 mmt 5. United States 58.2 mmt Total world production was 1,226.5 mmt in 2009, down from 1,329.0 mmt in 2008. The largest five steel producing worldsteel member companies in 2009 were:

1. ArcelorMittal 77.5 mmt 2. Baosteel 31.3 mmt 3. POSCO 31.1 mmt 4. Nippon Steel 26.5 mmt 5. JFE 25.8 mmt

3

A Brief Analysis of the Steel Industry in Pakistan

May 2010 Crude Steel Production Figures World crude steel production for the 66 countries reporting to the World Steel Association (WorldSteel) was 124 million metric tons (mmt) in May. This is 29.1% higher than May 2009.

•

• China’s crude steel production for 2010 was 56.1 mmt, an increase of 20.7% compared to May 2009. • Elsewhere in Asia, Japan produced 9.7 mmt of crude steel in May 2010, up 50.2% compared to the same month last year. • South Korea’s crude steel production for May 2010 was 5.2 mmt, 28% up compared to the same month last year. • In the EU, Germany’s crude steel production for May 2010 was 4.1 mmt, an increase of 87.7% on May 2009. • Italy produced 2.5 mmt, 42% higher than the same month in 2009. Spain produced 1.6 mmt of crude steel in May 2010, an increase of 24.9% compared to May 2009. • Turkey produced 2.5 mmt of crude steel in May 2010, an 18.8% increase over the same month in 2009. • The US produced 7.2 mmt of crude steel in May 2010, an increase of 73.8% compared to May 2009. Brazilian crude steel production was 2.9 mmt, 50.8% higher than May 2009.

World crude steel production in May 2010 was 9.8% higher in comparison with May 2007, before the impact of the global economic crisis was felt. However, while China, South Korea

3

A Brief Analysis of the Steel Industry in Pakistan and Turkey showed increased crude steel production in May 2010 compared to the same month 2007, the US, Italy, Spain and Japan are not yet back to pre-crisis production levels. The EU is -18%, North America -14% and Latin America -9.8% down on the five months to May total in 2007. The world crude steel capacity utilization ratio of the 66 countries in May 2010 slightly declined to 82% from 83.4% in April 2010. Compared to May 2009, the utilization ratio in May 2010 increased by 15 percentage points.

Global Steel Forecasts: WorldSteel Short Range Outlook The emerging economies, who in total maintained growth through the crisis, are expected to continue to grow, driving world steel demand in the future. Recovery in the major developed economies is slower and the projected steel demand for them in 2011 is well below the 2007 level.

1: Apparent steel use (ASU) Short range outlook for apparent steel use, finished steel (2009-2011)

ASU, mmt

Growth Rates, %

Regions

2009 (e) 2010 (f) 2011 (f)

2009 (e) 2010 (f) 2011 (f)

European Union (27)

118.4

-35.2% 13.7%

134.6

145.2

7.9% 3

A Brief Analysis of the Steel Industry in Pakistan Other Europe

23.9

27.2

30.4

-12.5% 13.5%

11.9%

C.I.S.

35.8

39.8

43.0

-28.2% 11.0%

8.0%

N.A.F.T.A.

80.9

99.9

107.1

-37.4% 23.5%

7.2%

Central & South America

33.6

40.4

43.1

-24.1% 20.0%

6.7%

Africa

26.4

28.7

31.3

9.6%

8.6%

9.3%

Middle East

40.7

44.7

48.4

-8.0%

10.0%

8.2%

Asia & Oceania

761.5

825.7

857.7

8.7%

8.4%

3.9%

World

1,121.2

1,240.9

1,306.2

-6.7%

10.7%

5.3%

China

542.4

578.7

594.9

24.8%

6.7%

2.8%

BRIC

640.9

692.0

720.7

17.5%

8.0%

4.1%

MENA

57.5

62.9

68.2

0.8%

9.5%

8.4%

World excl. China

578.8

662.2

711.3

-24.5% 14.4%

7.4%

World excl. BRIC

480.3

548.9

585.6

-26.8% 14.3%

6.7%

HISTORICAL ANALYSIS OF STEEL INDUSTRIES IN PAKISTAN 3

A Brief Analysis of the Steel Industry in Pakistan

Historical Analysis of the Steel Mill Projects in Pakistan Most Pakistanis do not realize that a Steel Mill is actually more essential than a nuclear plant, or a missile. A steel mill is the backbone of the infrastructure of any country. Whether it is roads, bridges, or sugar mills, everything comes from a steel mill. After independence in 1947, it did not take long for Pakistan to come to the realization that progressive industrial and economical development would be impossible without the possession of a self reliant iron and steel making plant. The dependence on imports would cause serious setbacks to the country along with an extortionately high import bill which would be impossible to support. Unfortunately Pakistan could not get a steel mill from 1947-1973. Most powers would not sell the technology that could undermine the industrial prowess as well as the export capability of Western enterprise. The initial idea for a domestic iron and steel mill was put forward in the first five year plan of Pakistan (1955 - 1960). Debates over the manufacturing process, supply sources of the requisite machinery and raw materials, plant site, domestic ore versus imported ore, ownership pattern, product mix and above all foreign financing credit kept the project on hold for a considerable time.

The Kalabagh steel mill project: 3

A Brief Analysis of the Steel Industry in Pakistan In 1956, M/S Krupp of Germany offered to set up a steel mill based on Kalabagh iron ore. Most of the other required minerals, including coal, were available in a radius of only 11 miles from the proposed site. Unfortunately, the concerned minister from a steel-importing family managed to sabotage this project. Mr. Ghulam Farooq, the then chairman of the Pakistan Industrial Development Corporation, resigned in protest. Interestingly, this Kalabagh iron ore was of such high quality that in June 1966, M/S Salzgitter of Germany procured 15,000 tonnes of the ore, and produced 5,000 tonnes of quality steel which was bought by the world-famous automobile company, Volkswagon. Consequently, M/S Salzgitter offered to set up Kalabagh steel mill based on Kalabagh iron ore, and imported coal. This project was estimated to cost only Rs1.5 billion. It adds to the credibility of the project that certain European banks offered to finance the project. Once again, the offer was rejected. In April 1968, President Ayub Khan accepted the Russian offer for Kalabagh steel mill project, and his successor President Yahya Khan inked the project agreement with Russia. However, it was later learnt that Russia did not possess the technology to produce steel from the Kalabagh iron ore. Common-sense would indicate that German offers for the Kalabagh iron ore should have been revived. Instead, the site of the steel mill was shifted to Karachi. Not only was its machinery comparatively inferior, but it was based on ore and coal that had to be imported.

The Nokkundi iron ore project: In 1972, experts from China discovered a substantial quantity of high quality iron ore in Nokkundi, Balochistan. Steel experts from America and Japan confirmed its suitability for steel production. They, therefore, recommended that a mini steel mill be set up in Balochistan. Even till 1999, offers from China and Iran were submitted to our government for this steel mill in Balochistan. Like the Kalabagh iron ore project, this too was never to see the light of day.

The Pakistan Steel Mill (PSM): After the engineered demise of the Kalabagh steel mill and the Nokkundi iron ore projects, Pakistan Steel concluded an agreement with V/O Tiajproexport of the then USSR In January, 1969 for the preparation of a feasibility report into the establishment of a steel mill at Karachi. Subsequently in January, 1971 Pakistan and the USSR signed an agreement under which the latter agreed to provide techno-financial assistance for the construction of a coastal based integrated steel mill at Karachi.

3

A Brief Analysis of the Steel Industry in Pakistan The foundation stone for this gigantic project was laid on the 30th of December, 1973 with an estimated cost of Rs14 Billion. It was completed in 1985, but only after the costs had soared by an additional Rs10 billion. Pakistan Steel is Pakistan's largest industrial complex. It’s unloading and conveyor system at Port Qasim is the third largest in the world and its industrial water reservoir with a capacity of 110 million gallons per day is the largest in Asia. A 2.5 km long sea water channel connects the sea water circulation system to the plant site with a consumption of 216 million gallons of sea water per day. PSM’s comprises of “Component Units” numbering over twenty and each is a big enough factory in its own right. Pakistan Steel is strategically located 40km south east of Karachi in close vicinity to port Muhammed Bin Qasim. Pakistan Steel is a costal site which lies on the National Highway and is linked to the railway network. Spread overran area of 18,600 acres (29 square miles) with 10,390 acres for the main plant, 8070 acres for the township and 200 acres for the water reservoir. Pakistan Steel specialize in the production of flat steel products including, billets, slabs, hot rolled coils, cold rolled coils, galvanized sheets/coils/formed sections and corrugated sheets. Moreover, while the installed capacity has been 1.1 million tonnes per year, the average utilization hovers around only 80 per cent of this target.

Importance of Pakistan Steel Mill Despite of all the scandals, corruption-cases and inefficiencies, PSM holds a strategic position in the economy of Pakistan. A steel mill is not a normal run of the mill factory. It has long term implications on the defense industry. In the case of defense projects like the JF-17 Thunder or the Al Khalid Tanks or the Shaheen missile, steel produced in Pakistan through PSM proved to be quite essential. The Pakistan steel mill was seminal in creating the gas centrifuges, the sugar mills, the Shaheen and Hataf missiles, the Al-Zarar and Al-Khalid tanks and the buildings of Pakistan.

3

A Brief Analysis of the Steel Industry in Pakistan

Privatization of Pakistan Steel Mills: In May 2006, the government of General Musharraf privatized Pakistan Steel Mills. The consortium involving Saudi Arabia-based Al Tuwairqi Group of Companies submitted a winning bid of $362 million for a 75 per cent stake in Pakistan Steel Mills Corporation (PSMC) at an open auction held in Islamabad. the consortium of Saudi Arabia-based Al Tuwairqi Group of Companies, Russia's Magnitogorsk Iron & Steel Works and local firm Arif Habib Securities paid a total Rs21.6 billion ($362 million), or Rs16.8 per share, to take control of Pakistan's largest steel manufacturing plant.

Suo moto notice In response to wide spread public outcry and call for action the Chief Justice of Pakistan took a suo moto action against the privatization citing irregularities in the process. The Supreme Court on August 8, 2006 held that the entire disinvestment process of the Pakistan Steel Mills reflected haste, ignoring profitability aspect and assets of the mills by the financial adviser before its evaluation and by the Privatization Commission (PC) and the Cabinet Committee on Privatization (CCOP) On June 23, a nine-member bench of the Supreme Court had annulled the sale of the country’s largest industrial unit to a three-party consortium and had directed the government to refer the matter to the Council of Common Interests within six weeks. It had declared the $362 million transaction with the Russian-Saudi-Pakistan investors as null and void. The verdict said that keeping in view the annual net profit of the mill, its shares’ value should have been ascertained by offering 10 per cent equity of the mills on the stock exchange. “A constitutional court would be failing in its duty if it does not interfere to rectify the wrong, more so when valuable assets of the nation are at stake,” the judgment said.

Pakistan Steel: bail-out package approved by Gilani The Ministry of Industries had sought Rs 25 billion for long term while an amount of Rs 10.640 billion immediately to salvage the mill. Allowing PSM closure would create a devastating affect on the already suffering economy of Pakistan and render 17,000 employees jobless thus creating an enormous social issue.

During the last three years PSM was totally dependent on imported raw material since there was disruption in supply of local raw material because of poor law and order situation. The local raw material otherwise also partially supplemented the requirements of the mill. The global recession and fluctuation of prices at

3

A Brief Analysis of the Steel Industry in Pakistan international level are beyond the control of Pakistan Steel Mills, which were mainly responsible for the losses. In April 2008, PSM signed contracts for raw materials at much higher rates, resulting in costlier finished products. With other steel producing countries lowering product prices, Pakistan Steel Mills witnessed a drastic slump in sales and recorded a loss of $156 million for the period July 2008-March 2009.

Steel Mills in Private Sector About 15 Arc furnaces of capacity 5 mt were installed in the private sector in early 70's and they have started their production to support Pakistan Steel Mills in producing steel in the country.

3

A Brief Analysis of the Steel Industry in Pakistan Currently there are more than 140 steel melting induction furnaces installed in different areas of Pakistan which are producing good quality steel to meet Pakistan's steel requirements. As Arc furnaces are expensive and take longer production time than Induction furnaces, so most of the private sector is shifted to Induction furnaces. Private factories are now producing steel with latest technology induction furnaces and they are trying their best to compete the international market. Pakistan Steel mills is producing about 1 million ton per year steel where private sector is producing 30 million ( including billet, rebars, channel and angle etc) The other requirements are fulfilled with ship breaking and other steel products.

Al – Tuwairqi Steel Mills:

Keeping in mind the recent the recent development, Saudi Arabia has also invested in the Pakistan Steel industry through renowned company "Al-Tuwairqi Steel Mills". TSML is the country's first private-sector integrated environment-friendly steel manufacturing project of Al Tuwairqi Holding, Kingdom of Saudi Arabia. Its complex spreads over an area of 220 acres at Bin Qasim, Karachi, and employs the world's most advanced DRI (Direct Reduction of Iron) technology based on the MIDREX process. After completion Al-Tuwairqi would be operational with an installed capacity of 1 million mt billet caster per year. Al-Tuwairqi will utilize the available Rizvi deposits of iron ore in Pakistan for production.

Mr

Zaigham

Adil

Director Projects Tuwairqi Steel Mills Limited

If everything goes according to plans, Tuwairqi Steel Mills Limited (TSML) aims to start production by the beginning of the fourth quarter, 2010. The construction of the plant took about three years and there was a nine-month delay due to finalizing procedures, but now construction is 95 percent complete

1st Phase: 3

A Brief Analysis of the Steel Industry in Pakistan

In its first phase, TSML's Karachi-based plant is targeted to have a production capacity of 1.28 million tonnes per year of direct reduced iron (DRI), which is used to make steel. Eventually achieving full capacity within a year's time and grow to Pakistan's largest steel producer. The first phase of TSML cost $275 million and was fully financed by Tuwairqi Holding, including 65 percent through debt. We should ask ourselves, what is DRI? DRI is one of the most preferred raw materials for quality steel making, globally. There is a consistent growth in the production of DRI over the years, owing to environment-friendly production processes and consistent quality of the product. Foundries and melt shops in Pakistan have not yet fully realized the benefit of using DRI. Actually, DRI contains around 94 percent iron with very little impurities, which are removable. As compared with the conventional steel making processes, using DRI gives a very good control over composition of various types of steels, and seemingly DRI is steel's most versatile form. We have recently signed agreements with some Indian and Malaysian companies for selling our DRI to them.

2nd Phase: In the second phase of the project, forward integration, the management plans to set up an electric arc furnace, for the production of 1.28 MTPY billets, an investment of USD 380 million and German technology. The firm is also looking at opportunities for iron ore exploration in Pakistan's Baluchistan and Punjab provinces However to meet its requirements in the coming period, it will be procuring buying the ore from Bahrain. TSML will be playing a pivotal role in bridging the demand-supply gap. It is important to note that Pakistan's annual demand for steel is around 8.4 million tonnes, while production is 4.9 million tonnes per year. Additionally TSML possess plans to export 50 percent of our production to India and the Middle East. Pakistan’s economy and industry in general is being hindered by power shortages, which are proving to be life-threatening for the very existence of the economy. The nation has production capacity of about 16,500 MW but faces a shortfall of between 4,000-5,000 MW. Tuwairqi Steel Mills plans to overcome this problem by building on-factory gas turbines, which can generate 38 MW, thus alleviating the power shortage problem for TSML. Moreover TSML will not only be a source of transfer of the latest technology of quality steel making, it will also be helpful in giving impetus to the industrial progress in Pakistan. It will open up new avenues of investment in similar plants besides giving a boost to the downstream industries of the country. In the context of human resource development, TSML will create around 1,000 direct and about 3,500 indirect job opportunities. Pakistan is among those countries that rely mostly on imports, when it comes to heavy mechanical structures and engineering goods. By producing high-quality steel within Pakistan, we can manufacture such equipment locally by value addition, with the help of downstream industries.

3

A Brief Analysis of the Steel Industry in Pakistan

Consortium plans steel mill at Kalabagh: A consortium of four steel mills will establish an integrated steel mill at Kalabagh, The planned steel mill would have annual capacity of producing one million tonnes of steel using indigenous iron ore excavated from Kalabagh and Chiniot. The consortium comprising four companies include Mughal Steel, Star Cotton Corporation, Pak Steel and Ittehad Steel Mills. They have already incorporated a company under the name of ‘Indus Consortium Mining & Steel Industry (Pvt) Ltd’ with Securities and Exchange Commission of Pakistan (SECP), sources in the ministry of Industry & Production (MOIP) told this correspondent.

3

A Brief Analysis of the Steel Industry in Pakistan

Pakistan Steel Production, Consumption & Growth Potential

Pakistan has also been experiencing growing demand for steel, but its demand for steel is overshadowed by China, India and Japan, for its annual consumption only reaches 5m tonnes. An increasing growth in the country's automobile and construction industries, as well as, large scale hydra-power projects dam construction, has contributed to the increase demand in steel. According to statistics for 2009, the world crude steel production stood at 1.2 billion tonnes, wherein Pakistan's share is merely about 0.24 percent. This speaks volumes of a huge potential of investment and growth opportunity in the steel sector of Pakistan. It is important to note that Pakistan's annual demand for steel is around 8.4 million tonnes, while production is 4.9 million tonnes per year. The current scenario of Pakistani steel sector indicates a huge growth potential in this industry. The per capita-consumption of steel in Pakistan is only 38 kg vis a vis a global average of 175 kg. Even if we consider the very modest increase in per capita steel consumption to 80 Kg in next 10 years, the steel requirement works out to be 16 million tons per annum for a population of around 200 million by year 2020. It is important to note that Pakistan's annual demand for steel is around 8.4 million tonnes, while production is 4.9 million tonnes per year. Many notable foreign investors and analysts insist that Pakistan is evidently a multi-billion dollar market, an for this goal to achieve it needs a number of quality steel manufacturing projects so that it does not only become self-reliant in steel sector but also can enhance its share in global engineering arena. As a step towards the above mentioned vision, Tuwairqi Steel Mills has established a Technology Centre and Applied Research Centre for human resource development.

3

A Brief Analysis of the Steel Industry in Pakistan

Comparative Imports of Metal Group during July-March, 2008-09 and 2009-10 Sr. #

Item Metal Group

2008-09 (July- 2009-10 (July- Percentage March) March)* Change 1883.2 1787.3 -5.1

% Share

(7.2)

(7.1)

41

Gold

18.9

117.1

519.6

42

Iron and steel 439.5 scrap

326.8

-25.6

43

Iron and steel

983.6

872.3

-9.5

44

Aluminum 87.8 wrought & worked All others 373.4 metals & artifacts

102.3

16.5

368.8

-1.2

G.

45

3

A Brief Analysis of the Steel Industry in Pakistan

3

A Brief Analysis of the Steel Industry in Pakistan

Government’s Role: Tariffs and taxes •

The Ministry of Industry and Production recently proposed imposing a 10 percent-15 percent import duty on steel products in order to protect domestic production and sales. The import duty will be imposed on three categories: galvanized products, cold- and hot-rolled coils. Pakistan Steel Mills, the country's largest steel producer, has been severely affected by the decline in steel prices worldwide.

•

In view of the present scenario in the steel sector, Pakistan's government has formulated a National Steel Policy. The policy aims at bridging the demand-supply deficit in the country by increasing domestic steel production capacity to 15 million tons per year by 2020. This augmentation in production capacity can sufficiently be sufficed through ample domestic iron-ore deposits. Pakistan has proven iron ore reserves of about 1.42 billion tons. The country's primary deposits are located in North West Frontier Province, Baluchistan and Punjab. These regions account for 947 million tons of iron ore reserves and are estimated to contain 20 percent-60 percent of iron content. Kalabagh, which has about 450 million tons of reserves, contains 30 percent-35 percent of iron. The new steel policy also proposes the development of steel mills in these regions. This would not only increase production but also bring down manufacturing costs. The government has planned duty cuts, assistance in land acquisition, and development of infrastructure to attract foreign and private sector investors to set up manufacturing facilities. Pakistan's first private sector steel plant is being developed in Bin Qasim by Al-Tuwairqi Holding (Dammam, Saudi Arabia) at an investment of $300 million.

•

Manzoor Ahmed Wattoo, Pakistan's Minister of Industry and Production, recently said the government is proposing to fix the prices of local steel products manufactured by state-controlled Pakistan Steel Mills Corporation Limited (Karachi, Pakistan) to be on par with international market standards. The proposal aims to not only integrate the steel industry in the country but also evolving a transparent, open system of operations.

3

A Brief Analysis of the Steel Industry in Pakistan Presently, steel companies in Pakistan do not conform to international steel prices but carry out price fixations independently. The Ministry also stressed the need for a committee to ensure steady supply of raw materials for the industry. The rates and taxes on steel products in Pakistan have not been altered despite the slump in steel prices globally.

Auxiliary Industries

The steel industry is considered the mother industry of all industries, particularly the engineering industry.

Cold Rolled Sheets Enameled ware Bicycle Steel fabrication Drums Barrels Jerry-cans Steel furniture Machinery Vehicle and bus bodies Steel containersteel container

Galvanized Sheets Containers Ducting equipment Water heaters Steel shuttering Desert coolers Boxes & Utensils Air-conditioners trunks Fresh water tanks Paneling appliances Construction and roofing

Cold and hot-formed Steel Fabrications Furniture Vehicle and Bus Bodies Building Construction Steel Doors and Windows Miscellaneous Machinery and Equipment

3

A Brief Analysis of the Steel Industry in Pakistan

SWOT analysis Strengths: • • •

Cheap labor Low cost Rebuilding of infrastructure in Afghanistan

Weaknesses: • The majority of Pakistani Steel is produced through small steel mills, which utilize outdated hearth process, and Pakistan has yet to modernize its steelmaking processes considerably. • Labor productivity in Pakistan is very low. • Steel production in Pakistan is hampered through power shortages, and this hindrance is less likely to be resolved in the near future.

3

A Brief Analysis of the Steel Industry in Pakistan • In addition to being scarce, energy is also expensive thus contributing towards incompetence of Steel Mills. • Poor infrastructure. • Lack of R&D investment • Dependence on imports for steel manufacturing equipments and technology. • Raw materials are also being imported from Australia and Canada. Greater distance and high freight charges- increased cost of production. • Price of domestic steel is dependant on international markets. • Local demand is unsatisfactory and needs to be encouraged, especially Construction and Housing sector. • Substandard raw materials are being smuggled across Afghanistan • Production process is not environment friendly- not implementing innovative process technologies that reduce emissions and wastages, sludge and dust. • Only 60% of the capacity is being utilized • Lack of management skills and information systems in the industry • Machinery is old and needs repairs and upgrades. • In the world steel industries there is a paradigm shift from technology oriented to value enhancement. • Inconsistent policies resulting in poor investor confidence as portrayed by the failure of privatization

Opportunities: •

Govt. reduced GST, additionally EDB is proposing a 0% sales tax. • The large iron ore and coal reserve of Pakistan provide good opportunity in the steel sector for enterprising investors. • The Engineering and Development Board (EDB) of the ministry of industries and production has evolved the long term ‘National Steel Policy’ with a view to cover the widening demand and supply gap by achieving a production target of 15 million tonness of steel by 2020. • Pakistan to shift its focus from textile & agriculture to heavy industries. ( heavy industries 60 % of world trade) vision 2030. • Setting up of high tech plants ( Tuwairqi Steel Mill ). • Transfer of technology and enhancing quality of manpower through setting up six engineering universities.

3

A Brief Analysis of the Steel Industry in Pakistan • Kalabagh and Chiniot have known deposits of iron ore that have not yet been excavated and utilized by the local steel industry, as importing iron ore, iron and steel scrap was cheaper than mining local ore a capital-intensive venture. With global steel and iron ore prices skyrocketing there is hope that both International and domestic steel makers have finally decided to excavate and exploit local reserves.

Threats: • • • •

Slow growth in infrastructure development. Possibilities of export growth from China. Pak Steel Mill --- historically a loss making enterprise. Recent trends ---imports from India. Interest rate scenario– will have a bearing on the

• construction sector. • Increased vulnerability to international market trends. • Lack of professionalism (implementation of technology).

Pakistan Steel Mills Factor Conditions and Issues

1)

Infrastructure: •

The machinery of Pakistan Steel has become old and it needs renovation and improvement. Moreover, it the machinery is being run badly in the past years.

3

A Brief Analysis of the Steel Industry in Pakistan •

Only 60% of the capacity is being utilized and no steps are being taken for the capacity expansion.

2) Raw Material: •

• •

• • • • • • •

The basic raw material for the steel melting industries is the steel scrap. The scrap is classified into different categories, by each factory, depending on the quality and use. Scrap of different categories is generally stored in separate piles. Following types of scrap are in common use, in varying proportions, in different factories. o Pressed Oil & Paint Tins o Pressed Used Beverage Cans (UBC) o War Scrap o Ship Breakage Scrap o Parts of Vehicles and Machines Main raw materials of steel industry include steel scrap, fluxes, Ferro alloys and coke, whereas steel scrap is used in abundance in comparison with other constituents. About 1,000,000 ton steel scrap in total, inclusive of 400,000 ton scrap imported from countries like Middle East, South Africa, Australia, and Europe, is consumed annually in Pakistan for melting. MS billets, steel ingots and other steel scrap form the main raw material for steel re-rolling mills, obtained from Pakistan Steel Mill Karachi and other steel smelters all over the Pakistan. Raw materials are being imported from Canada and Australia, which are far away, involving huge freight charges. Other major countries are South Africa, South America and Europe. PSMC, imports 100% of it iron ore and coal requirements, whereas fluxes are procured locally. Contracts with India and Iran have been signed for import of iron ore, which seems convenient and feasible. Major sources of supply of coking coal are not available, which is now being imported from Australia. The price of domestic steel is dependent on international factors since 75 per cent of our steel demand is met through imports. Smuggling of sub-standards raw material

3) Labor: •

About 90 per cent employees are over 40 years old and some of them are not maintaining good health.

3

A Brief Analysis of the Steel Industry in Pakistan •

• •

•

There has been no fresh induction in last decade creating a vacuum. However, induction in the three tiers started in 2005-06. This includes enrolment as apprentices, Junior Officers based on their diploma and other technical performance, and finally induction as assistant managers in various professional disciplines through an open and transparent system of selection. Metallurgical Training Center (MTC) has been undertaken with selection on merit and effective arrangements have been made for on-job-training (OJT). Contract with Ukraine, Japan, China, Russia and Iran have been signed for mutual co-operation in training of our engineers. Labor agitation over privatization

4) Technology • •

•

•

• •

Innovative process technologies that reduce emissions and wastes (sludges, dusts, CO2) are not implemented. Advanced recycling solutions that convert wastes into valuable products are also not available There is a paradigm shift in the world steel industries where companies are becoming less and less technology-oriented and more and more “valueenhancement” oriented. This is reflected by the efforts of producers to improve the quality and value of their products as exemplified by the development of new and ultra-high-strength steels .The creation of highervalue steel grades through innovative product development is an important step for maintaining and expanding existing markets, as well as for securing niche markets. Pakistan, however, has been unable to inculcate this shift in its local industry. There is a lack of management skills and information systems in the industry which if implemented can drastically reduce the cost of production. This cost reduction can be realized through an improvement of business processes (investment strategy, organizational aspects, flexible and just-in-time supply, etc.), partnerships with suppliers and service partners, as well as by the permanent optimization of production routes, equipment and logistics. Failing state of Coke Oven Batteries which need immediate reconstruction to produce Coke urgently needed for survival of Blast Furnaces, as well as Billet Mill’s which is dependent on Coke Oven By-Product gases Coke-Oven Batteries, Hot Strip Mill and Steel Making Department remained totally ignored because of financial crunch and non-professional approach with which the mill was being run.

3

A Brief Analysis of the Steel Industry in Pakistan

5) Utilities: •

•

•

•

•

Electricity: Electricity is the main, most expensive and most consumed utility in melting industry, with a reported consumption range of 400-1300 kWh per ton of product. About 96-99 % of the total electricity is consumed by the furnace; and rest for other purposes including lighting, overhead crane and motors. Water: Major common water uses include the following: o Make-up water for furnace coil water-cooling tower o Cooling of moulds o Laboratory o Flue gas scrubbers o Human use Fuel Gas: Fuel gas is primarily used, in some units, for preheating the ladle. Gas is utilized, also, to meet some of the household requirements in the factory as well as in the residential accommodations, if located within the premises of the industrial unit. Hundreds of steel re-rolling and re-melting mills in Pakistan either owes their very existence or depends heavily on the ship-breaking industry for the supply of ship plates. The small re-rolling mills are worst hit by the non-availability of ship scrap as they entirely depends on ship plate compared to the bigger ones which can afford to use a comparatively more expensive iron billet of the Pakistan Steel. The small re-melting mills are facing a similar situation unlike the big counterparts, which can afford to use iron ingot. The ship breaking industry is in crisis due to 1. Increase in international prices of ship scrap 2. High import duty 3. Excessive taxation

The idling of the ship-breaking industry have forced the steel re-rolling and remelting mills, particularly the big ones, to replace comparatively less costly ship plate by a more expensive Pakistan Steel billet • •

Compared to India (who is a net exporter of steel) Pakistan has to import steel in order to meet its local demand. PSMC’s entire product mix is sold locally with no export sales.

6) Environmental Issue Steel melting furnaces: Steel melting industries are contributing heavily to air pollution. Pollution is generated due to poor quality of scrap bundled. The operation of the induction furnace produces metal dusts, slag and gaseous emissions. 12 Kg of particulate matter is produced per ton of product (at the

3

A Brief Analysis of the Steel Industry in Pakistan most). The primary hazardous components of furnace dust are zinc, lead, and cadmium but its composition and contents vary with the scrap quality and furnace additives. Re-rolling mills: The only environmental related issue is the occasional discharge of black smoke, which emit when the furnaces are run on furnace oil in winter

Recommendations: Improving Efficiency, Reducing Costs, and Increasing Overall Competitiveness. Electric arc furnaces are a common method of reprocessing scrap metal to create new steel, and this process does not need much electricity. This process can also be used for converting pig iron to steel. Ship breaking used to be a vital source of scrap for processing steel. However, the prices of ships have also increased with demand for iron and steel. Due to the high profits and high freight rates shipping companies are extending the working period of their vessels to even more than the normal usage life, i.e. 25 years, therefore leading to increasing ships demand in international market. Rising scrap prices were forcing the prices of steel products in country to shoot up which cannot be contained by furnace casting mills them selves. Pakistan’s current steel demand is around 5 million tons per year and only 3 million tons is produced so the remaining gap of 2 million tons steel is being imported in the country, he added.

• • • • •

Focused research and development activities in collaboration with foreign experts. Financial needs to be addressed by the banks. Management of Mineral Resources. Beneficiation of low grade Indigenous Iron ore. Promote private public partnership in Steel sector.

3

A Brief Analysis of the Steel Industry in Pakistan • • • • • • •

Development of Human capital. Committee of technical experts should be formed to study indigenous raw materials. Benchmarking studies, Countries using low grade Iron Ore e.g. China , Germany , Mexico etc. Constitution of a coordination committee having members from both private sector and government. As the Chinese are using Iron Ore with the properties similar to that of Pakistani Ore, a visit of to Chinese Steel industry may also be arranged. The government should focus on developing and supporting mini steel mills which require less capital investment and based on supply from local iron ore deposits in Punjab, Khyber-Pakhtunkhwa, and Baluchistan, say observers. These state of the art mini mills prove to be more cost effective, require less capital investment and are easier to modernize instead of revamping PSM which has out-dated technology and worn-out machinery. But there are many hurdles to cross including importing under a clear and transparent scheme.

SHIP BREAKING & STEEL SCRAP INDUSTRIES 3

A Brief Analysis of the Steel Industry in Pakistan

Ship breaking and Scrap Industries form a crucial component of the Pakistani Steel Industry. Without briefly touching upon the above mentioned industries would be to formulate an incomplete report. The remaining part of the report briefly discusses the Ship Breaking and Scrap Industries, which majorly provide the basic raw material for the Pakistani Steel Industry. The ship breaking industry in Pakistan, which once occupied a second rank position in the world, was thrown into a verge of collapse in the 1990s due to the ascendancy of influential political power of a family having a significant interest in steel trade. In the 1970s it provided direct jobs to some 100,000 workers and indirect jobs to over 500,000 persons. During this period, 150 ships used to enter Gaddani beach for ship breaking purposes with more than 100 companies operating in the country. Gaddani ship breaking industry was considered as the largest and the best ship breaking centre in the world. The years between 1969 and 1983 are considered to be thriving periods of ship breaking industry in Pakistan. It was during this period that the ship building industry reached its zenith, leaving many other international ship breaking industries far behind in terms of the total number of ships being broken down and the tonnage of ship scrap being handled. It is estimated that during these flourishing days, this industry contributed Rs5.3 billion to the national exchequer taxes annually. The ship breaking industry did prosperous business from 1970s to 1990s due to cheap labor availability and the large demand of ship scrap from abroad. However, when government abruptly imposed duty on ship breaking industry in the 90's, it started to decline. After the Pakistan ship breaking industry came to a standstill in the 1990s, India and Bangladesh became the pioneers of the ship breaking industry in the world. Most of the foreign clients turned to them in this hour of critical crisis. Today both countries are prospering due to lower cost and less strict environmental and labor regulations. China, an important contributor in ship breaking industry in the 90s is trying its best to reposition itself. In India, the annual ship breaking figure has reached the level of above 3 million tonness followed by Bangladesh with 1.5 million tonness. Hundreds of steel re-rolling and re-melting mills in Pakistan either owes their very existence or depends heavily on the ship-breaking industry for the supply of ship plates. The small re-rolling mills are worst hit by the non-availability of ship scrap as they entirely depends on ship plate compared to the bigger ones which can afford to use a comparatively more expensive iron billet of the Pakistan Steel. The nonavailability of raw material, ship plate, has forced the existing re-rolling mills to switchover to iron billet from the Pakistan Steel. This shift on the part of the re-rolling mills is resulted in increase demand for the Pakistan Steel's billet, the price of which has registered a substantial increase. That explains the closure of tens of steel rerolling mills in Karachi during last many years. A ray of hope emerged for the industry owing to global recession that had hit the shipping industry as well. Major players were forced to get rid of the old vessels instead of going for the mandatory dry-docking which is a high-cost activity and there were strong indications last year within the community of ship-breakers that over a thousand vessels could be scrapped during 2009 alone.

3

A Brief Analysis of the Steel Industry in Pakistan Ship breaking boom has once again returned as more than 70 ships have arrived at the Gaddani ship breaking industry from different countries for scrapping. The removal of custom duty and sales tax had helped to revive this ship breaking industry after a pause of eight to ten years. This has given immense job opportunities to people residing in that area and to those in the adjoining areas. It is anticipated that these ships would produce 500,000 tonnes of scrap for the steel industry in the country. Since the ship scrap smuggling from Afghanistan and Iran has been halted, it might turn out to be beneficial to the industry.

Despite the tentative revival of Ship-breaking Industry of Pakistan through the removal of import duties, it again faces the problem of a slowdown. The problem initiated after re-rollable steel import has been given the green signal, the demand for regional steel scraps have plummeted seriously. This can have a negative impact on its economy. The possibilities of large scale job loss and unemployment looms large over the ship breaking industry of the country. To further aggravate the situation, already coupled with duty-free imports of rerollable steel, and stiff competition from India & Bangladesh, the sharp rupee depreciation has raised the cost of imported vessels and the business volumes have witnessed a sharp decline over the last three months which is contrary to happenings elsewhere. How are ship-breakers in the neighboring countries able to quote competitively? The answer lies in the strength of each currency against the greenback. A dollar, which values around 70 rupees in India and 68 taka in Bangladesh, is worth around 84 rupees in Pakistan. Simply put, in terms of local currency, Bangladeshi ship-breakers pay 23,800 takas per LDT when they quote $350. In India, it is the equivalent of Rs24500, while in Pakistan one has to dish out an additional Rs4,550 per LDT for the same quotation. When you pay at that exorbitant rate for the vessel and then the local market quotes Rs36,000 for the scrap, it is just not worth it. Other factors include a vibrant local manufacturing base in India which keeps the demand for steel almost always high. Bangladesh doesn’t have an industrial base anywhere as massive as India’s, but it has one of the lowest labor rates in the world which is said to be less than half of what it is in Pakistan. Interestingly even the most unskilled of labourers at Gadani makes a minimum of Rs8,500 per month, which, by the way, is over 40 per cent more than the minimum wage set by the government. In Bangladesh, you would get the same amount of work done for 3,000-3,500 takas. The difference, as you can see, is huge. Which, incidentally is good for the people but not for the industry. The overall cost of doing business is also against local ship-breakers, they argue, basically citing gas tariff which, according to them, is too high for an industry which is almost entirely dependent on it for making its giant mechanical cutters functional.

3

A Brief Analysis of the Steel Industry in Pakistan To summarize about 80 per cent of a ship's steel is "reusable steel" cheaper than primary steel and used mostly in construction and astonishingly 80 per cent of the world’s ships are being dismantled in two countries Bangladesh and India. Pakistan, on the other hand, is struggling to meet the challenge on various counts, due to the policies and conditions mentioned earlier. To speak optimistically Pakistan possesses a strategic proximity advantage over India and Bangladesh as it is close to Dubai ports. Guided with supporting government policies, and general overhaul, the Pakistani Ship-breaking Industry can regain its lost pride and position. Recommendations for the Improvement of Ship- breaking Industry In order to increase exports, the ship breaking industry has to be upgraded by the introduction of latest technology. Provision of gas, electricity, water, medical recreational and housing should be made available for the workers in this industry. Special care needs to be taken in the handling of dangerous equipments. The relevant laws concerning safety and health use must be implemented strictly through a proper system. Moreover utility stores need to be established. The government must also ensure that toxic substances are not allowed to drain off into the sea which cause water-pollution and injure marine life.

FUTURE PROSPECTS

3

A Brief Analysis of the Steel Industry in Pakistan

Extracting domestic Iron-Ore Reserves

According to the Geological survey of Pakistan, Kalabagh (Mianwali district) holds substantial iron ore reserves at an approximate 9,300 million tons. Given this, the idea of constructing the second largest steel mill at Kalabagh was explored by the Musharraf regime in 2004.

Local raw material procurement would be a blessing to the country’s national exchequer and those who painstakingly import raw materials from countries such as India, Iran and Turkey.

3

A Brief Analysis of the Steel Industry in Pakistan

Al-Tuwairqi Steel Mills

TSML is the country's first private-sector integrated environment-friendly steel manufacturing project of Al Tuwairqi Holding, Kingdom of Saudi Arabia. Its complex spreads over an area of 220 acres at Bin Qasim, Karachi, and employs the world's most advanced DRI (Direct Reduction of Iron) technology. Currently it has been installed with an operational capacity to produce 1.28 million tonne DRI per year, which is further planned to be augmented to such an extent so as to replace Pakistan Steel Mills as the largest Steel Mill in Pakistan.

TSML will not only be a source of transfer of the latest technology of quality steel making, it will also be helpful in giving impetus to the industrial progress in Pakistan. It will open up new avenues of investment in similar plants besides giving a boost to the downstream industries of the country. In the context of human resource development, TSML will create around 1,000 direct and about 3,500 indirect job opportunities.

3

A Brief Analysis of the Steel Industry in Pakistan

BIBLIOGRAPHY

3

A Brief Analysis of the Steel Industry in Pakistan

http://www.nationsencyclopedia.com/Asia-and-Oceania/PakistanINDUSTRY.html#ixzz0sn556kfD http://www.arabianbusiness.com/591597-weak-gulf-steel-demand-couldlead-to-oversupply http://steel.pk/ http://tribune.com.pk/story/13721/steel-industry-beset-with-problemsdespite-bright-prospects/ http://steelguru.com/interview/detail/132/Making_Pakistan_steel_sector_str ong.html http://www.onepakistan.com/finance/news/pakistan-business-generalnews/4198-Year-end-review.html http://www.fandmmag.com/web/online/Industry-News/Pakistan-Proposesto-Link-Domestic-Steel-Prices-with-International-Market-Rates/1$3435 http://scrapnews.recycleinme.com/newsdetails-20.aspx http://steeltimesint.com/news/view/pakistan-has-the-potential-to-increaseits-steel-production-to-16mt-y http://rupeenews.com/2008/06/12/the-2nd-major-steel-mill-for-pakistan/

3