Pakistan Economic Forum - Pakistan Business Council

PakistanEconomicForumIRON & STEELDecember 13, 2018

S T E E L C O N S U M P T I O N P E R C A P I TAWorld Average Steel Consumption:228 Kg/Capita (2017)China, 545USA, 338Iran, 273Bangladesh, 27-Pakistan, 46India, 75Potential for Pakistan to increase per capita steel consumption by up to 5 timesDuring the last 5 years Pakistan had a CAGR of 19% for steel productsSource: World Steel Association

WORLD STEEL PRODUCTIONMetric Tons (MT) in SA1249010280825USSR / 708471,4331,689 Exponential rise in Chinese steeloutput from 2000 – 2017 Pakistan’s private sector steelindustry driving growth from 2010onwardsCurrently 70% of steel worldwide is made from iron ore, 30% from recycled scrapSource: World Steel Association

G D P V S . S T E E L C O N S U M P T I O N ( P E R C A P I TA )Developing NationsDeveloped Nations- Positive correlationbetween GDP &steel consumption(per capita) fordeveloping nations- Empirical data showsthe importance of steelin the industrializationphase of developingnationsPakistanSource: World Steel Association, IMF- The importance ofsteel diminishes aseconomies mature andprogress towardshigher value addedgoods

W O R L D V S . PA K I S TA N ’ S S T E E L P R O D U C T M I XPakistanWorld55%39%61%Product CategoryMarket Size(MT in millions)Long ProductsFlat ProductsTotal5.53.5945%%Product Category6139100Long ProductsFlat ProductsTotalMarket Size(MT in millions)7609291,689%4555100Pakistan has inverse ratio as compared to the world in production between long and flat productsSource: World Steel Association, Industry Sources

PA K I S TA N ’ S S T E E L D E M A N D O U T L O O KSteel consumption growing at 19% CAGR during last 5 yearsINDIGENIZATION DRIVINGGROWTH Expansion ofall major listedprivate sector flat and long steelproducers in 2018 Upcoming Autos Appliance manufacturers, Tube manufacturersPSX listings in longproducts to further strengthenengineering sector capabilities Infrastructure developmentDOWNSTREAM INDUSTRIESGRADUALLY LOCALIZINGto drivedemand for long and flat productsVALUE ADDITION TOCAPTURE DOWNSTREAMRETAIL DEMAND Investmentin steel service centersto capture additional retail leveldemand and boost entrepreneurial Other various fabricationindustriesdrive

ENHANCING DOMESTIC STEEL PRODUCTIONEnhancement of 9 million MT / annumInvestment 2.2 billionLand1,000 acresEnergy1,800 MWWater15 million gallons / daySteelmakingCapacityJob CreationImportSubstitutionGestationPeriodPolicy SupportTariff Support1. Limit mutually agreed tariff support to maximum 10 years forfinished products and raw materials2. Essential to build scale in presence of China-Pakistan FTAEnergy1. Gas at the rate for the five export sectors for import substitution9 million MT / annumFinance1. Forward cover for import of machinery2. LTTF for 50% of project cost100,000 (20,000 Direct Skilled Manpower 80,000 Indirect) 2.2 billion / annum(11% of balance of payments)3-5 yearsTaxation1. No tax holiday required2. Exemption from Minimum Income Tax, Alternate Corporate TaxQuality1. PSQCA to be strengthened to limit sub-standard steel products

B E N E F I T S O F L O C A L M A N U FA C T U R I N GEnhancement of 9 million MT / annumInvestment US 2.2 billion4.5 million MT Flat Products 4.5 million MT Long ProductsUS 2.2 billion / annumForeign currency savings throughimport substitution100,000 Jobs(20,000 Direct Skilled 80,000 Indirect)Development of local labor & technicalexpertise11% balance of payments of FY 1710 TimesAnticipated multiplier effect onGDP of having strong industrial steel baseSource: Pakistan China Joint Chamber of Commerceand Industry Research and Development CellTechnology TransferEnhanced engineering capability andsupport for downstream industries

PA K I S TA N S T E E L M I L L S LT D . ( P S M )OVERVIEW- Current capacity 1.1 million MT/ annum (expandable up to 3 million MT/ annum)Capacity & Production- At current capacity PSM needs 5 times increase in capacity to meet domestic demand of just long products- Highest ever production approx. 1,000,000 MT / annum (2003-04)Raw Material- Imported high grade iron ore and coking coal. Other minor raw materials sourced domesticallyArea- 19,000 acres (including 8,000 acres for employee housing colonies)Workforce- Approx. 11,000 people (Year 1990: 27,500 people). Significant shortage of technically trained manpowerEstimated repair cost- PKR 24 billion (excluding HSM, CRM, galvanizing and expansion up to 3 million MT)- Blast furnace, coke oven batteries, by-product plant, and pipelines require technical audit to ascertain actual costWAY FORWARDConduct technical audit to ascertain health of steelmaking machinery & equipmentAs per experts current capacity of 1.1 million MT is sub-economical due to high cost of production. To compete with imported material &realize economies of scale, capacity to be increased to 3 million MT at minimal cost as infrastructure for this has been provided in theoriginal designAssessment of available technical and semi-skilled man powerConversion of billet into bar mill to be considered in view of CPEC projects

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28 Pakistan n/a 0.78 1.0 0.8 5 WORLD 717 770 847 1,433 1,689 Metric Tons (MT) in Millions Exponential rise in Chinese steel output from 2000 –2017 Pakistan’s private sector steel industry driving growth from 2010 onwards Currently 70% of steel worldwide is made from iron ore, 30% from recycled scrap Source: World Steel Association