Pakistan: Imported scrap prices decline by $7/t w-o-w amid steel market uncertainty

Pakistan's imported shredded scrap prices were assessed at around $404-410/tonne (t) CFR, dropping $7/t w-o-w amid uncertain market conditions, especially in the finished steel market. Buyers floated bids at below $400-402/t levels, whereas offers for high-grade shredded/bonus materials were heard at $410-415/t CFR Qasim. Last week, deals were heard in the range of $407-410/t for around 2,500-3,000 t of shredded scrap from Europe, with some deals remaining under negotiation.

As per a trader source," Offers in the market are at around $405-410/t. Buyers even in India are holding at $400/t but sellers are not active in this bid range."

A mill source informed, "The steel sector is in deep trouble and mills are making losses on inventory. Customers are absent due to uncertainty in rates."

Domestic market: The domestic steel scrap market had a challenging week, with local scrap offers at PKR 140,000-150,000/t ($515-552/t), rebars at PKR 255,000-265,000/t ($938-975/t), and billets at PKR 210,000-220,000/t ($772-809/t). Recent discussions among mill unions in Lahore and the Punjab region led to a decision not to sell rebar or billet at these low prices, impacting manufacturing costs. This has resulted in a lack of activity in the imported scrap segment, and the steel sector is facing significant challenges. Moreover, the daily depreciation of the dollar and rising electricity rates have added to the overall confusion

A major mill source in Pakistan said: "Mills are feeling the pinch as prices are dropping continuously and grade 60 grade is being offered at PKR 218,000/t. Recently, small furnaces have decided to close operations till the market improves and we have not heard much on purchase."

The PKR has cumulatively gained around 11%, or PKR 30.27, in the past 28 working days compared to the record low of PKR 307.10 against the USD on 5 September. In the open market, the currency closed unchanged at PKR 277 against the greenback, according to the Exchange Companies Association of Pakistan (ECAP). The Pakistani Rupee has regained 18.41%, or PKR 51, over the past month in the retail market. Despite these currency fluctuations, the steel industry is still grappling with uncertainty, causing losses and a lack of customer activity.

The steel industry faces a precarious future largely due to the ongoing issue of rampant smuggling, particularly from neighbouring Iran and Afghanistan. The Pakistan Association of Large Steel Producers (PALSP) has expressed grave concerns about the scale of smuggling, estimating it to be around 500,000 t annually, resulting in a staggering loss of tax revenue amounting to PKR 25 billion. Despite repeated appeals to the government for decisive action, there has been limited progress. Even efforts made by the Prime Minister and the Federal Board of Revenue (FBR) have only offered temporary relief.

Corrupt practices and official patronage in smuggling activities, as exposed by Senate committee members, has shed light on a deep-rooted issue. These practices involve fixed rates and bribes at various checkpoints. Consequently, there has been an influx of non-tax-paid smuggled steel into the market being sold at significantly lower prices.

The situation remains critical, and PALSP has issued a stern warning about the severe damage that could be inflicted on the steel industry if immediate and effective measures are not taken to address this pressing concern.

Outlook: The imported ferrous scrap market is expected to remain subdued, with major scrap buyers in Pakistan, particularly steel mills, likely to refrain from new production rounds in the current scenario. There are no signs of improvement in import activities in the near term.