Pakistan: Imported ferrous scrap index down by $2/t w-o-w; dull domestic steel market amid monsoon

Pakistan's imported ferrous scrap index declined by $2/tonne (t) w-o-w despite higher offers from both the UK, ($430-432/t) and the UAE ($433-434/t).

As per a mill source, recent heavy rains have disrupted operations, causing delays in bill payments and customer payments. Additionally, with average sales prices falling below cost, the ability to purchase scrap is constrained and finished steel sales remained limited. Mills are currently awaiting a price reduction before resuming bookings.

Buyers remained cautious and majorly interested at $415-420/t levels but as per market insiders, mills are increasingly engaged in domestic procurement for regular production. Looking at the current financial constraints and rising operational costs, it might become a common practice for multiple mills to consolidate their imports under a single Letter of Credit (LC). This approach helps manage costs more effectively and streamline financial operations amid challenging market conditions.

According to a trader, inquiries from Pakistan, which were previously active, have now slowed considerably due to heavy rains affecting key regions.

BigMint's assessment of Europe-origin shredded stood at $427/t, down by $2/t w-o-w.

Around 3,000-4,500 t of shredded scrap from the UK were booked at $420-428/t CFR Qasim in the last seven days.

Domestic market: Billet and rebar prices have increased after consecutive drops and now stand at PKR 216,000-217,000/t and PKR 255,000-257,000/t exw. Domestic scrap is priced at PKR 153,000-154,000/t exy, up by PKR 1,000/t. Rebar prices remained largely stable, but sales continued to be subdued with no w-o-w improvement. Commercial quality billets faced ongoing pressure, even though scrap prices and availability were tight.

As per another mill source, recent heavy rains have disrupted operations, causing delays in bill payments and customer payments. Additionally, with average sales prices falling below cost, the ability to purchase scrap is constrained and finished steel sales remained limited. Mills are currently awaiting a price reduction before resuming bookings.

The Pakistan Association of Large Steel Producers (PALSP) has urged the government to address this crisis by renegotiating contracts with Independent Power Producers (IPPs) and converting Return on Equity (ROE) from dollar-based to rupee-based for government-owned RLNG plants. They also call for an audit of power sector inefficiencies and debt restructuring for newer plants.

The current agreements with IPPs are unsustainable, with billions paid monthly for idle power plants. This financial burden, combined with high electricity costs compared to regional peers, jeopardised steel industry's survival and impacted related sectors.

Immediate action is needed to renegotiate IPP contracts, retire outdated power plants, and focus on reducing transmission and distribution losses to prevent industry collapse and widespread economic fallout.

Outlook

The steel industry in Pakistan is in severe distress due to exorbitant power tariffs and high-capacity charges, which have drastically increased production costs. This has led to the closure of numerous steel units, with the remaining ones operating at minimal capacity. The deep-sea ferrous scrap trade segment is expected to remain under pressure, as buyers adopt a wait-and-see approach, hoping for clearer conditions before committing to new orders.