Steel sector warns of collapse

Express Tribune

21-06-2025

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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 year—far 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.