Steel demand halves, scrap prices tumble amid political turmoil

The country's steel industry is grappling with a significant downturn, marked by a near 50% drop in demand over the past two months due primarily to the slowdown of construction projects amid political instability that erupted before and after the fall of the Sheikh Hasina government.

As public and private construction works have slowed, its ripple effects are being felt across the steel industry and related sectors, raising concerns about the future of one of the country's largest industries.

Industry insiders said that political uncertainty has made developers hesitant to start new projects, resulting in a sharp decline in demand for steel, particularly for rebar (rods). 

This drop in demand has led steel manufacturers to cut production by nearly 50%, significantly reducing the need for scrap metal, which is the primary raw material in steel production. 

Consequently, scrap metal prices have fallen by 16% in the local market over the past two months.

Scrap prices fall by Tk10,000 per tonne

In June, steel scrap was priced at Tk62,000 per tonne, but by mid-August, it had dropped to below Tk52,000 per tonne, according to traders.

This price decline has severely impacted the ship-breaking industry, which provides about 60% of the steel industry's raw materials. With demand falling sharply, ship-breaking yards are struggling to sell their scrap.

Taslim Uddin, managing director of RK Ship Recycling Industry, said, "The drop in steel demand has caused a significant fall in scrap prices, leading to substantial losses for us." 

He added that while the rising cost of the dollar has increased the price of imported scrap to Tk65,000 per tonne, low demand forces them to sell it at Tk51,000-52,000.

Steel prices high despite cheaper scraps

Even though scrap metal prices have dropped, the cost of finished steel products, such as 500W rods, has not decreased proportionally. This discrepancy is mainly due to increased production costs resulting from a 300% rise in gas tariffs and a nearly 70% hike in electricity tariffs, sector insiders said.

These energy price hikes have significantly elevated the overall cost of steel production, preventing manufacturers from passing the savings from lower scrap prices onto consumers. 

For instance, 500W rods, which sold for Tk92,000 to Tk95,000 per tonne in June, only saw a slight decrease to Tk86,000 to Tk90,000 per tonne by August—much less than the reduction in scrap prices.

Mohammad Jahangir Alam, chairman of GPH Ispat Group and president of the Bangladesh Steel Manufacturers Association, said, "The sharp rise in gas and electricity tariffs has made it impossible to lower steel prices significantly, despite the drop in scrap costs."

Industry faces uncertain future

Sudip Kumar Das, director of Prime Steel Trading in Chattogram, said, "In June, we sold around 4,000 tonnes of steel rods. By July, sales had dropped to under 2,000 tonnes, and by August, they fell further to 1,500 tonnes."

He noted that from 2015 to 2023, the steel industry thrived, primarily due to government investment in major infrastructure projects. Even during the pandemic, steel demand remained steady. 

However, with these large projects concluding by late 2023, steel demand sharply declined. Political unrest has worsened the situation, causing demand to fall further.

Amitab Roy, a steel trader, added that private sector construction, which had been a lifeline since mid-2023, has also slowed significantly. 

"The private sector was our hope after the government's mega projects ended. Now, private projects have stalled, and smaller government projects are at a standstill as contractors linked to the previous government are fleeing," Roy said.

Mehrul Karim, CEO of KSRM Group, said that decreased steel demand has forced industry owners to cut production. "Instead of operating around the clock with three shifts, most steel mills are now running only one shift," he added.

Industry leaders call for govt support

The Bangladesh Steel Manufacturers Association has urged the government to take urgent action to stabilise the industry. 

Alam said that rising energy costs and changes in revenue policies have driven up the cost of imported raw materials, further squeezing profit margins for steel manufacturers. 

He called for government subsidies or other forms of relief to prevent the industry from collapsing.

Despite the current downturn, Bangladesh's steel industry has been on a growth trajectory over the past decade. 

Industry data shows that annual production capacity has increased from 250,000 tonnes to 900,000 tonnes in the last 10 years, with plans to reach 10 lakh tonnes by 2030. 

Long-term forecasts had predicted a 25% rise in steel consumption by 2027, driven by infrastructure development and individual consumption.

However, these optimistic projections are now at risk due to ongoing political and economic instability affecting both supply and demand.