In Pakistan, a slowdown in the construction industry is already visible in the recently announced financial results of the listed cement companies. The effect of reduction in local consumption may hit the local steel industry harder, which is already suffering from a slowdown in the economy. It will be very difficult for steel industries to pass on the sudden rise in input cost to consumers without negatively affecting the revenue. Currently, many companies such as Aisha Steel and International Steels are going through the expansion cycle due to the expected rise in demand from the China-Pakistan Economic Corridor (CPEC), construction of dams and recovery in local construction industry.
Considering the fact that only 50 percent of the steel product requirements are met locally, the expansion is not going to create a surplus and the steel industry should do well in the long run. However, on the short-term basis, the bottom line for the steel manufacturing companies may remain depressed due to a sudden rise in the input cost, slowdown in the economy and further rise in interest rates.
Aisha Steel Mills Ltd (ASML)
Aisha Steel is part of Arif Habib group and is one of the largest private sector investments in the value added flat-rolled steel industry in Pakistan. The principal activity of the company is manufacturing and selling cold rolled steel in coils and sheets. Aisha Steel is one of the major producers of cold rolled steel coils in Pakistan. It is a state-of-the-art flat steel rolling complex with the name-plate capacity of 220,000 tons per annum. Further, the company is expanding to increase its existing capacity of Cold Rolled Coils (CRC) as well as adding a galvanizing line to produce zinc coated coils. Moreover, after completion of on-going expansion their total capacity will increase to 700,000 tons, including 250,000 tons of GI coils. According to JCR-VIS, Aisha Steel was market leader during 2017 with 36 percent share in CRC segment. During 2018, quantity sold by the company increased marginally, and the company has maintained its market share.
During the year the total market size of CRC increased to 630,000 tons, which depicted an increase of 18 percent as compared to last year. Similarly, market size of galvanized coils also increased to 560,000 tons, rising by 20 percent when compared to last year. Total import of CRC was about 250,000 tons during the year. Since imposition of anti-dumping duty on Chinese and Ukrainian material, CRC is being imported from other countries including Russia, South Korea and Japan.
China steel export prices sets the tone for global steel markets. China is not only the biggest producer but also the largest steel exporter globally. Since December 2017, the Hot Rolled Coil (HRC) FOB export price have been relatively stable in the range between US dollar 560 to 580 per ton. It peaked for a short duration in March 2018 and subsequently settled as per the previous range. The stability in the steel market is threatened by the on-going trade war between China and America. If it escalates, the market may witness large fluctuations and even sharp decline in prices. The instability can have negative impact on the local manufacturers.
The company in the year 2017-18 has achieved 99% capacity utilization. The improvements being made in the existing setup will further improve productivity as well as quality. The new state-of-the-art roll grinder acquired from Germany is now fully functional. This will help in improving thin gauge CRC quality needed for high end white goods and automotive industries. In order to ensure continuous growth and maintain sizeable presence in the market, the company has announced expansion plan to increase CRC production to 700,000 tons, out of which 250,000 tons will be galvanized. The proposed expansion will optimize cost of production due to economy of scale and also diversify product mix. After successful completion of the project, ASML will become the second largest producer of flat steel products.
International Steels Limited (ISL)
International Steels Limited is the largest Flat Steel manufacturer in Pakistan. The company was incorporated in 2007 and commenced production in 2010. To date, the company has invested approximated US dollar 250 million in establishing a state-of-the-art flat steel complex. ISL’s manufacturing facilities are located on 32 acres in the port city of Karachi, where the company produces Cold Rolled Steel, Galvanized Steel and Color Coated Steel for numerous industrial and commercial applications. The company has a strong nationwide supplier network that is served through regional offices in Lahore, Islamabad and Multan. ISL exports its products to more than 20 countries worldwide.
In its short history, ISL has carried out extensive large-scale expansion activities to enhance production. With the recent expansion, the company now has a capacity of over 1,000,000 metric tons. The company has played an important role in developing the large-scale industrial manufacturing sector of Pakistan. ISL’s high quality steel serves as an essential input for various upstream and downstream industries of the country. Through consistently expanding manufacturing capacity, the company has substituted a significant portion of Pakistan’s flat steel imports, resulting in foreign exchange saving for the country.