Pakistan: Imported ferrous scrap offers drop by over $5/t w-o-w amid weak domestic steel demand

The imported ferrous scrap prices witnessed a nominal drop this week as largely slow buying activity and finished steel sales remained sluggish due to year-end closing and tight cash flows. Only a few buyers were seen active as per their needs; Shredded scrap offers from Europe were assessed at $425-430/t CFR Qasim.

Market sources informed that the recent surge in imported scrap prices has dampened interest in the market.

A representative from a steel company commented, "Market activities are currently non-existent, and the condition of the domestic steel market is also unfavourable at the moment."

Approximately 8,000-10,000 t of shredded scraps were booked from Europe and Middle East origins during the week in the range of $428-435/t CFR Qasim.

SteelMint's European-origin shredded scrap assessment stood at $428/t, witnessing a decline of $6/t w-o-w.

Domestic market: Within the domestic market, local scrap prices were heard in the range of PKR 160,000-165,000/t, billets were heard at PKR 215,000-220,000/t and rebars were heard at PKR 250,000-255,000/t exw.

A steel mill representative shared, "Market prices remained stable compared to last week amidst sluggish demand due to year-end closures and lack of major sales due to tight cash flows. We expect the current situation to persist in the last 10 days of December, with potential improvement anticipated in market conditions during the first to second week of January."

Steel industrialists urged the withdrawal of the Power Holding Limited (PHL) surcharge on Monday to support the industry's growth. The Pakistan Association of Large Steel Producers (PALSP) delegation, led by Secretary General Syed Wajid I. Bukhari, visited the Islamabad Chamber of Commerce and Industry (ICCI) to address issues caused by the surcharge and other taxes on electricity bills. They called for the withdrawal of the surcharge by NEPRA to prevent the collapse of the steel industry.

IMF status: Despite the IMF's involvement, Pakistan received only $4.285 billion in foreign loans during July-November 2023, falling short of the annual target of $17.6 billion due to a poor credit rating and global financial market challenges. This marked a more than 16% decrease compared to $5.115 billion in the same period last year. The adverse international environment and Pakistan's credit rating contributed to lower inflows, prompting the country to defer a planned $1.5 billion Eurobond issuance. Caretaker Finance Minister Dr. Shamshad Akhtar announced the shelving of conventional bonds for the current year.

In November, total inflows recorded by the Economic Affairs Division were $416 million. Notably, private commercial banks showed no return to Pakistan, as inflows remained zero in the first five months against the full-year target of $4.5 billion.

Currency exchange rate: The Pakistani rupee continued its upward trend against the US dollar for the sixth consecutive session, appreciating by 0.07% in the interbank market to settle at PKR 283.01, a gain of PKR 0.20. In the open market, the rupee was quoted at PKR 284 for selling and PKR 281 for buying. Pakistan borrowed $4.285 billion in the first five months of the fiscal year 2023-24, compared to $5.114 billion in the same period last year. The gain in the rupee comes amid improvements in the country's external account, with a current account surplus of $9 million in November 2023. However, the World Bank warned of a potential drop in remittance flows, projecting a decline to $24 billion in 2023 and below $22 billion with a 10% decline in 2024.

Outlook: Market insiders suggest that the outlook is currently uncertain, with greater clarity expected after the conclusion of the EU holidays. If the current low demand persists in the steel and scrap markets until the end of the month, imported scrap offers are likely to remain soft.