The Privatization Commission Board of Pakistan has approved a proposal to lease out Pakistan Steel Mill (PSM) for a period of 30 years to a private player under a revenue sharing arrangement. The state-owned facility which is spread over 19,000 acres with accumulated losses of over 1.56 billion dollar has not produced steel since June 2015. The board’s chairman has said that some Chinese & Iranian steel companies have shown interest in taking over the plant; however there are also reports that China’s steel giant Baosteel has initiated talks for the said lease.
Pakistan’s major business houses have quoted that Chinese companies have evinced high interest in investing into Cement, Steel, Energy and Textile sectors which form the backbone of the country’s economy. A couple of Chinese entrepreneurs have already snapped up two major deals – acquisition of Karachi Electricity Supply Corporation and 40 per cent of Pakistan Stock Exchange. Visibly, these back-to-back events have their roots to the China-Pakistan Economic Corridor (CPEC) which was announced during the state visit of Chinese President Xi Jinping to Pakistan in April 2015.
The China-Pakistan Economic Corridor
The CPEC is a collection of projects currently under construction with estimated investment of USD 54 billion that are typically regarded as a part of China’s ambitious One Belt, One Road (OBOR) initiative. Projects under the aegis of CPEC are intended to strengthen the Pakistani economy by the rapid overhaul and construction of major infrastructure projects, establishment of special economic zones, and an improved supply of electricity. Infrastructure projects under the CPEC plan will span the length and breadth of Pakistan, and will eventually link Pakistani seaports in Gwadar and Karachi to China’s northwestern autonomous region of Xinjiang via a vast network of highways and railways.
While a large segment of the industry audience views this as the much-needed push to propel steel demand and create jobs in Pakistan, there are some who are cautious whether these massive infrastructure projects proposed under the CPEC and OBOR will use steel that is made in Pakistan or is this more for using the steel produced by over-capacity hit China.
Pakistan’s Steel Industry – an Overview
The World Steel Association (WSA) estimates Pakistan’s total steel production in CY2016 at 3.6 million tonnes, approximately 23% increase over 2015 (2.9 mnt). Vietnam (20%) and Iran (11%) are the only 2 other nations with double-digit growth in 2016. India’s steel production grew by 7.4% during this period. WSA also reported last year that Pakistan consumed about 5.7 mnt of finished steel in 2015 mainly importing flat products (~2.5 mnt).
Although, the Pakistan steel industry is largely fragmented with about 600 big and small players; some of the major manufacturers have grown significantly in the last 3 to 5 years to cater to strong infrastructure demand from large residential projects and the automotive sector. Prima- facie, considering the potential for infrastructure development in the country, steel demand for the next few years seems intact. Now, it has to been seen how Pakistan’s free trade agreement with China to import finished steel at concessional rates will affect local steel mills and expansions.
Source: Steel 360 Magazine Mar’17 Issue