Once booming steel industry now in deep stress

The growth of steel production and consumption is an important factor in determining a country's development. Over the last decade, steel production and consumption in Bangladesh have soared, denoting that the country has been developing rapidly.  

Bangladesh's steel and re-rolling industry has played a vital role in developing the overall infrastructure of the country. In addition, for years, the steel industry has been supporting other industries like transportation, energy, heavy engineering and construction by supplying necessary steel products.

In the last few years, the country's local steel market has grown by 15 to 20%, which has a current market size of over Tk50,000 crore. Besides, Bangladesh is currently producing semi-finished steel – 'billet'. As a result, steel products are being exported abroad after meeting the local demand.

The fact that leading steel manufacturers in Bangladesh have moved to expand their businesses in recent times as steel consumption per capita has increased in line with economic development.

The journey of Bangladesh's steel industry began in 1952 with the establishment of 'Bangladesh Steel Re-Rolling Mills' (BSRM) at Nasirabad, Chittagong. After Bangladesh's independence, there were a few steel mills in the country. In 1984, KSRM, a Concern of Kabir Group of Industries, started their operations in Bangladesh with Modern machinery and established an Automated Rolling Mill. In the year 1993, another prominent steel manufacturing company Abul Khair Steel, started its operations in the country. 

Meanwhile, after 1990, as construction work in Bangladesh continued to snowball, the demand for steel also increased at the same rate, resulting in the establishment of several large steel mills in the country.

According to Bangladesh Steel Mills Owners Association, there are about 400 steel mills in the country, with a total production capacity of about 9 million metric tons. The country consumes more than 7 million metric tons of steel. The steel sector employs around 1 million people directly or indirectly.

Of the total production, 60% of steel is used in Bangladesh's public sector, 25% is used in households, and 15% is used in commercial construction. The demand for steel in Bangladesh is multiplying. Even a decade ago, the demand was 1.6 million metric tons, but it reached 7 million tons in 2018 and is expected to rise to 18 million tons by 2030.

Although the steel production capacity is expected to increase, it has been severely hampered by the Coronavirus pandemic in 2020. The total loss to steelmakers due to the Coronavirus pandemic in 2020 was Tk5,957.61 crore. Nevertheless, since the situation has slowly normalised in 2021, the steel industry has begun to turn things around after tackling the pandemic.

But, another wave of crisis due to the Russia-Ukraine war has put the industry under immense pressure. The power and energy crunch, an increase in raw material prices in the international market, a shortage of foreign currency and economic instability throughout the country is severely hurting the industry.  

In addition, the drive to include steel in the essential commodity segment has been a severe blow to the steel industry over the past five months. As a result, demand fell to almost 70% lower at the initial stages and even now, it is barely where it should be currently, even in the peak season.

At the manufacturing stages, the industry is facing a liquidity squeeze, mainly for not being able to open a Letter of Credit (LC). The available limits cannot be availed, which is straining the manufacturers.

The situation is similar with the dealers who are not being able to avail their full credit to purchase goods from the manufacturers. Hence, bulk sales have slowed down.

For the end consumers, it is the same story. As the prices have gone up so much, they are unable to afford it. Coupled with the squeeze in bank credit facilities, they are not being able to purchase flats or properties, which in turn is slowing down the growth of the construction and manufacturing sector. The overall economy is also shrinking due to the bank's liquidity crisis as well as the high cost of all items' raw materials.

In addition, payments in some government projects are being delayed, another reason for falling sales. If project implementation does not become more efficient, it will put the growing steel industry in big trouble. Default loans are a significant obstacle to private sector investment, which is also a threat to the steel industry.

Massive investment and vast expansion in the steel industry were mainly triggered by the large number of public infrastructure megaprojects over the last decade. The steel manufacturers have been enhancing their production capacity based on future projects implemented by the government. If progress in these projects slows down due to the economic crisis, the steel industry will be in deep trouble.

The author is the deputy managing director of KSRM Group