Steelmakers squeezed by higher costs, weak demand

Local steelmakers are facing higher production costs just as construction demand remains weak, forcing mills to offer discounts to keep sales moving.

The price of 60-grade mild steel (MS) rod, widely used in construction, has risen to Tk 92,500-Tk 94,500 per tonne from Tk 88,000-Tk 92,000 a month earlier, according to the Trading Corporation of Bangladesh (TCB).

Tap here to add The Daily Star as a trusted source

But the higher quoted prices have not translated into better returns, as manufacturers are cutting prices through discounts to secure orders.

The pressure increased after the government raised electricity tariffs for industrial consumers by 17.86 percent in June. Steelmakers say the increase, along with gas shortages, power disruptions and higher fuel and transport costs, has raised the cost of producing steel.

“Steel manufacturers have been forced to raise prices by around Tk 2,500-Tk 3,000 per tonne due to higher power tariffs, but inadequate gas supply and frequent power disruptions are making production increasingly difficult,” said Sumon Chowdhury, secretary general of the Bangladesh Steel Mill Association (BSMA).

BSMA President Mohammad Jahangir Alam said the electricity tariff increase alone had raised production costs by about Tk 1,785 per tonne. After accounting for VAT, port charges, fuel, transportation and other expenses, the additional cost could reach about Tk 3,560 per tonne, he said.

“We did raise prices to adjust for the higher costs, but customers could not really accept the increase,” Jahangir said. The higher priced steel was not selling, so manufacturers had no way but to absorb part of the higher costs while competing for a shrinking pool of buyers.

“The basic problem is demand generation. There is hardly any demand in the market now, and we are having to sell products with great difficulty,” said Manwar Hossain, chairman of Anwar Group of Industries, which operates Anwar Ispat.

Manwar said steel prices had risen by about Tk 1,000 per tonne following the power-tariff increase, but manufacturers were effectively offering discounts of around Tk 1,500 to secure sales.

“So, the price increase is visible, but nobody sees the discounts we are giving internally,” he said.

Market activity is currently at around 50-60 percent of normal levels, Manwar estimated, highlighting the gap between quoted prices and actual selling prices.

GAS SHORTAGES DEEPEN PRODUCTION WOES

The industry’s production capacity is also being constrained by shortages of gas and electricity. Bangladesh has around 40 modern steel mills and more than 150 re-rolling mills, with combined annual production capacity of about 1.22 crore tonnes, according to BSMA. Domestic demand is only around 50 lakh tonnes a year. BSMA’s Sumon said some plants were operating at only 50-60 percent capacity because of load shedding and low gas pressure. Gas pressure sometimes improves temporarily before falling again, making continuous production difficult.

“My gas burners have been shut for 13 days, and my furnace is also closed,” he said.

Gas shortages are particularly damaging for mills that depend on reheating furnaces. Steel plants need gas to preheat ladles to about 600-700 degrees Celsius before molten steel is poured into them. Without sufficient heat, some molten steel can solidify during pouring, causing substantial wastage.

“If 20 tonnes of material is put into a ladle, around three to four tonnes can be wasted because it solidifies,” Sumon said, explaining the current plight.

The price of 60-grade mild steel (MS) rod, widely used in construction, has risen to Tk 92,500-Tk 94,500 per tonne from Tk 88,000-Tk 92,000 a month earlier

Mills with direct hot-rolling facilities are in a relatively better position because they can produce rods without relying on reheating furnaces. Even so, their production remains at only about half of capacity, he added.

Manwar said power disruptions were also creating significant “unseen costs”. A sudden outage at his factory, for example, could cause an immediate loss of about Tk 60,000 when material is damaged.

The steel industry, being capital-intensive and dependent on continuous production, cannot easily absorb such losses, he said.

The combination of weak demand, higher input costs and production disruptions is leaving manufacturers caught between raising prices and maintaining sales volumes.

Manwar urged the government to take measures to revive private-sector demand, saying stronger activity would benefit not only steelmakers but also the broader construction industry and businesses and services linked to it.