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Express Tribune
a day ago
- Business
- Express Tribune
Steel sector warns of collapse
Listen to article Pakistan's steel sector may become the first casualty of the government's decision to open the economy to foreign competition, as a parliamentary review finds flaws in the assumptions behind cutting protection levels by 52%. Abbas Akber Ali, patron-in-chief of the Pakistan Association of Large Steel Producers (PALSP), warned on Friday that the proposed tariff reduction would push Pakistan toward trading in imported steel instead of manufacturing it locally. If implemented, the new National Tariff Policy would shut down local mills, leading to $1 billion in annual steel imports and risking around 2 million jobs, he said. PALSP Chairman Javed Iqbal Malik stated that the current protection level of 53% for the steel sector would fall to 10% by the policy's fifth yearfar below the 38% minimum needed. Malik said the association met with Haroon Akhtar Khan, Special Assistant to the Prime Minister on Industries, who acknowledged their concerns but said he was powerless to help. He added that the PM's steering committee on industry concerns also refused to meet the industry. Under the new policy, the average applied tariff rate will fall from 20.2% to 9.7% over five years, a 52% drop, Commerce Secretary Jawad Paul told the National Assembly Standing Committee on Finance this week. In FY26, tariffs will fall to 15.7%, a 22.3% cut in the protection wall. This will include reducing customs duty to 11.2%, additional customs duty to 1.8%, and regulatory duty to 2.7%. The government said reforms are based on the World Bank's Global Trade Analysis Project (GTAP) model. The Standing Committee had asked World Bank and commerce ministry officials to brief Opposition Leader Omar Ayub Khan. Ayub and other members met with the experts on Friday in the Parliament House and later shared their observations with the committee. Ayub told the committee that the GTAP model was static, had limitations, and was based on trading in only a few tariff lines. He also criticised the use of Pakistan Bureau of Statistics data, calling it unreliable, and noted the model ignored several key variables. Committee Chairman Syed Naveed Qamar asked Ayub to submit his observations in writing to the committee. The GTAP model projects exports to grow by 10-14% and imports by 5-6%. Over five years, it anticipates trade liberalisation to reduce the trade deficit by only 7%. Abbas Ali urged the government to delay tariff rationalisation for at least one year or until the industry stabilises. The association said the proposed policy could cripple domestic steel production, trigger a $4 billion foreign exchange outflow, worsen the import bill, and deepen the current account deficit. With steel mill closures, 4,000 megawatts of electricity used by the industry would go idle, and 2 million jobs are at risk, Abbas said. According to the association, the perception that the current tariffs protect the industry is inaccurate - only offsets cost differences caused by state-regulated input prices, especially energy. "We can compete globally if electricity costs Rs20 per unit instead of the current Rs40," Abbas said, adding that high electricity rates raise local steel production costs by Rs50,552 per tonne. Abbas said the industry does not seek protection having invested over Rs100 billion in modern European technologies and is regionally and internationally competitive. Tariff reductions would allow semi- and fully-finished products to flood the market, raising the import bill by at least $1 billion, the association said. Javed Malik stated that tariff cuts should be delayed until power, taxes, and interest rates become regionally competitive. He noted that India, the world's second-largest steel producer, has increased protection for its steel sector. Bangladesh offers 90% protection, while Pakistan's protection level is half of this at just 43-57%. Malik said Bangladesh imposes minimal sales tax per ton, while Pakistan charges Rs38,000, and pointed out that Bangladesh's largest mill has a capacity of 2.4 million tonnes, while Pakistan's largest 1.1 million-tonne mill is shut down. Abbas said the government should have first introduced reforms with incentives for iron ore extraction alongside tariff cuts. This would increase raw material supply, reduce costs, improve quality, and enhance global competitiveness. He added that Pakistan's steel production is just 6 million tonnes, compared to Iran's 35 million, India's 100 million, and China's 900 million tonnes. India, China, Russia, and Iran all have state-owned iron ore mining companies supplying to private sectors, giving local manufacturers access to cheaper materials — about $30 per tonne.
Business Recorder
28-05-2025
- Business
- Business Recorder
PALSP team informs Aurangzeb: Tariff cut will result in closure of steel industry
ISLAMABAD: Pakistan Association of Large Steel Producers has warned the government that reduction in tariff of finished steel under the garb of tariff rationalisation will result in closure of the domestic steel industry. These views were expressed by leadership of PALSP in a meeting held with Finance Minister Muhammad Aurangzeb and his team on Tuesday. They said this measure will be most detrimental at a time when there is demand decline due to large-scale closure of construction activity in the country. This will result in loss of jobs, loss of government revenue and above all a drastic increase in import bill by one billion USD. Steel industry seeks a 'viable and clear' tax policy If the government opts for any reduction in tariffs on finished or semi-finished steel products (bars or billets), it will result in de-industrialisation and permanent closure of steel industry, as well as, massive unemployment in the country. PALSP members highlighted the detrimental effects of tariff rationalisation on the steel industry's survival, with over 60% of steel units already closed and others operating at small fraction of their capacities. PALSP proposed linking tariff rationalisation to key performance markers that reduce the cost of doing business (CoDB) and enhance global competitiveness. Steel industry urged the minister to consider postponing tariff rationalisation plan for a period of one year or until the industry's situation normalises. PALSP members emphasised that with current high cost of doing business a 35% tariff is required for the local industry to maintain a level playing field compared to imports; furthermore, given the low-capacity utilisation in the current economic turned down a protection of at least 15% is further required. The total protection on imports of steel bars/ steel bars should not be less than 50% in any case. PALSP members exhorted that at this point in time, any reduction in duties/ tariffs would open flood-gates to millions of tons of steel that is lying surplus in other countries who are leading steel producers, due to the ongoing tariffs wars between the leading economies of the world. It was also highlighted that Pakistan's steel industry consumes nearly 4 billion kWh of electricity annually and contributes over Rs. 200 billion in government revenue. A decline or closure of industry will significantly reduce this contribution and simultaneously escalate capacity payments, placing additional strain on the energy sector and aggravating the circular debt crisis. PALSP members highlighted that Pakistan's steel industry is one of the most efficient in the world. During the last 7 to 10 years, the domestic steel industry installed plants with technologies from Italy, Germany, China and Turkey; hence, making them optimum for cost effective. However, high CoDB, particularly sky high electricity rates, high gas rates and similarly high interest rates/ financial cost are the primary factors hindering its growth and export potential. Steel being an energy-intensive industry, where electricity accounts for 65% of production costs, is severely impacted by exorbitant electricity rates. However, the Finance Minister acknowledged the need to address the issue high power and gas costs in the country. He also noted the global trend of tariff wars. PALSP also urged the government to maintain present sales tax with exemption on local supplies of steel scrap to prevent fake & flying invoices and tax evasion. Industry said that any reversal of the policy, shall re-introduce menace of flying and fake invoices culture in the steel sector. The meeting was attended by senior government officials and PALSP members, including Abbas Akberali, Patron-in-Chief of PALSP, Javaid Iqbal, Chairman of PALSP, Senator Nauman Wazir Khattak, Chairman FF Steel and Wajid Bukhari, Secretary General PALSP. Copyright Business Recorder, 2025
