Steel industry leaders warn of ‘total collapse’

ISLAMABAD: The steel industry is in the midst of an unprecedented crisis. With many steel mills already shuttered, the remaining few are operating at just 20-30% capacity, grappling with unsustainable production costs and a collapse in demand.

The industry leaders warn that without immediate and decisive government intervention, the sector faces total collapse, leaving millions of jobs at stake.

At the heart of the crisis is the staggering cost of electricity – Rs52.39 per unit – the highest in the region. Energy intensive industries like steel, where electricity is a primary input, have been disproportionately affected.

The Pakistan Association of Large Steel Producers (PALSP) has criticized lack of progress on the promised “wheeling” mechanism, which would allow the manufacturers to purchase cheaper electricity directly from the independent producers.

The PALSP has suggested that the government reduce electricity tariffs for the steel industry, emphasizing that the sector’s demand of 4-6 million tons annually could utilize approximately 4.8 billion units of idle power.

This would not only enable higher capacity utilization but also reduce payments to the independent power producers (IPPs) for the unused electricity. “The steel industry is collapsing under the weight of unsustainable policies,” said Wajid Bukhari, Secretary General of PALSP.

“Steel mills across the country are shutting down not because of mismanagement, but because of conditions beyond their control. Skyrocketing electricity costs, exorbitant borrowing rates, and a drastic reduction in demand have pushed manufacturers into an impossible position.

Without immediate relief, this sector — which supports millions of jobs and over 45 downstream industries — would be lost,” he said.

The financial strain on steel manufacturers has been compounded by other economic challenges. The steep devaluation of the Pakistani Rupee has nearly doubled the working capital requirements, leaving companies unable to maintain inventories or sustain operations. Simultaneously, record-high interest rates — peaking at 25% — have made credit inaccessible, further squeezing the industry.

While the recent reduction to 15% offers some relief, manufacturers argue that single-digit rates are essential for recovery.

The demand for steel has also plummeted due to a sharp decline in public sector development program (PSDP) funding.

Infrastructure projects, which account for 60% of local steel consumption, have come to a near standstill.

Private construction has slowed dramatically as well, leaving manufacturers with unsold inventory and mounting losses.

Economic indicators reflect a broader crisis in the industrial sector. Large-scale manufacturing (LSM) contracted by 0.76% in the first quarter of FY25, marking the third consecutive year of negative first-quarter growth — a trend not seen in over 20 years.

The inability to stage even a modest recovery highlights the severity of the downturn. Foreign investment has also taken a hit, with a major Chinese steel producer recently abandoning its plans to expand operations in Pakistan.

The company cited prohibitively high energy costs, excessive taxation, and unsustainable borrowing conditions as key reasons for relocating to a more business-friendly country.

The consequences of this crisis are devastating. Thousands of workers have already been laid off as mills shut down or scale back operations, leaving countless families in financial ruin. The PALSP has called on the government to implement urgent reforms to save the sector.

These include subsidizing electricity rates and reducing interest rates to single digits.