The crisis might trigger factory sellout

The ongoing macroeconomic issues that brought about a crisis for the country's industries may trigger a wave of factory sellouts, especially in the steel sector as many mills are turning sick.

Already some owners have started selling their factories surrendering to the adverse situation.

Both cement and steel are capital-intensive sectors. They need huge capital expenditure and bank borrowing to build factories.

Having over a trillion taka in cumulative investments and growing short of expectations, both the major construction material industries are suffering from capacity utilisation problems as only around half of the installed capacity is being used nowadays.

Keeping in mind the local market headroom to grow in line with the rapid economic development in the country, the industries responded to the government calls for utilising the country's surplus power, though building large factories and the gas-power crisis nowadays hurts them.

Since the pandemic, raw material costs soared by 1.5 times due to the global supply chain disruptions, and spiked-up sea freight. And the energy and dollar price hike in 2022 made the entrepreneurs' lives even tougher as all the cost hikes cannot be passed on to the customers overnight, especially when the industry competition is too high.

The narrow-margin businesses of steel and cement in the second half of 2022 fell into a worse reality as the appreciating dollar alone eroded 30% of the industries' working capital.

All the companies are bleeding now.

Banks amid the dollar shortage are barely opening letters of credit (LCs) to import raw materials for the two commodities that the government and central bank even treat as essential ones, unlike luxury items.

Many companies are selling from their buffer stocks and if the situation continues the market might face a supply shock.

And, the LCs being opened nowadays may bring another shock for the companies if the dollar appreciates further as the LCs are settled months later.

Raw material imports for the steel and cement industries are subject to at least a four-month lead time.

In such a crisis, we are having no support from the government, neither from its revenue office nor anyone else.

The National Board of Revenue, instead, imposed a 30% regulatory duty on cement industries' limestone imports a few months back.
Clean businessmen are the victims of the adverse situation and it is the government that can decide to solve the issues by thinking about the future of the factories.

The Advance Income Tax the NBR is collecting during raw material imports should be adjustable when the companies incur losses.
Rates should be fixed by the market and then companies may make their calculative moves through their predictions.

Md Shahidullah is the managing director of Metrocem Ispat and Metrocem Cement; first vice president of Bangladesh Cement Manufacturers Association; and secretary general of Bangladesh Steel Manufacturers Association