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Pakistan: Weak demand, competitive local scrap drag down imported offers w-o-w

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Melting Scrap

BigMint Bureau

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22 Oct 2024, 20:03 IST

Pakistan: Weak demand, competitive local scrap drag down imported offers w-o-w

Cash flow constraints limit purchasing activity

Steelmakers call for 18% tax on local scrap

Imported ferrous scrap offers to Pakistan have softened slightly, as bids remain higher than Turkiye's. Buyers are now seeking prices below $395/t for shredded scrap, following a $10-15/t drop in Turkiye.

Despite this shift, shredded scrap purchases in Pakistan remain limited, with current prices hovering at $395-398/t, indicating constrained demand across the market.

As per a major trading house source, premium yard prices are hovering at around $400/t, while other yards are offering at $395-397/t. However, demand remains sluggish, with very limited buying activity as market sentiments remain weak.

BigMint's weekly assessment of European shredded scrap stood at $400/t CFR Qasim, down $5/t from $405/t CFR a week ago.

As per market insiders, major scrap volumes are set to arrive on 23-27 October, but traders are struggling with cash flow issues and are being forced to offer at much lower prices. Current offers are at around $400/t, but material is being released for as low as $390-395/t. One trader said he is securing some quantity at $385/t, while fresh bookings of UK shredded are available at $395/t.

In the last seven days, about 4,000-5,000 t of UK shredded has been booked at $402-408/t CFR Qasim.

Domestic market scenario

Current rebar prices range from PKR 245,500-250,500/t whereas, local scrap is priced at PKR 138,000-143,000/t and billet remains at PKR 203,000-205,000/t exw basis.

Steelmakers seek 18% tax on local scrap: The delay in reforming the tax regime for steel producers using local scrap from unregistered suppliers has cost the national exchequer over PKR 30 billion since July, say industry players. Organised steelmakers report a monthly loss of PKR 8 billion due to the Federal Board of Revenue's (FBR's) failure to impose an 18% sales tax on steel furnaces.

"This comes amid a tax shortfall," noted a key industry figure, emphasising the inaction despite several meetings with FBR officials.

A Karachi-based steel mill source informed that while local scrap is currently cheaper than imports, imposing taxes could raise costs and make imports more competitive. Small mills in Punjab produce low-cost Bala from local scrap, but taxes on these purchases may increase their expenses. Some mills are evading taxes by buying without invoices, leading steelmakers to urge stricter compliance.

Currently, rebar prices range from PKR 245,000-250,000/t, although some major mills sell at PKR 260-265,000/t with monthly sales of 5,000-8,000 t, he added.

A key member of the Pakistan Steel Association highlighted that the new regulation, which shifts the tax burden to furnaces rather than unregistered scrap suppliers, aims to curb tax evasion and create a balanced market.

Despite some mills still evading taxes by purchasing without invoices, stricter enforcement is now in place. Effective July 2024, the law mandates that furnaces pay taxes on local scrap purchases, addressing previous delays in the tax collection system.

The IMF has called on Pakistan to invest 1% of its GDP, around PKR 1.24 trillion, annually, in climate resilience to mitigate the impact of extreme weather events. This proactive spending could reduce disaster damage by one-third and speed up recovery. The recommendation comes alongside ongoing fiscal reforms, emphasising the need to strengthen infrastructure and improve public investment efficiency to address climate risks.

Outlook

Market insiders expect lacklustre sentiments in the steel sector, but say IMF support may lead to improved conditions in the construction sector in the coming months, which can potentially boost rebar sales.