4 days ago
- Business
- Business Recorder
Iron and steel industry: MoC proposes massive changes in tariff structure
ISLAMABAD: Ministry of Commerce (MoC) has proposed massive changes in tariff structure of the country's iron and steel industry aimed at increasing its utilization and extending support to domestic manufacturers and downstream industries, sources close to Secretary Commerce told Business Recorder.
Sharing the details, sources said that MoC, on January 3, 2025 submitted a summary to Economic Coordination Committee of the Cabinet (ECC) regarding 'extension of Regulatory Duties on finished flat steel products.'
ECC of the Cabinet considered the summary and approved extension of Regulatory Duties (RD) on relevant Iron and steel products till March 31, 2025. The approval was conveyed on January 20, 2025.
RD imposed on flat iron/steel products extended until Mar 31
In addition to this, ECC of the Cabinet further directed Ministry of Commerce to conduct an overall analysis of steel sector along with impact of the regulatory duties on steel and present a report before the ECC by March 31, 2025. In compliance with the ECC directions, the National Tariff Commission was tasked to prepare the report on Iron and Steel sector.
According to the report, the total production of the sector was 8.40 MMT MT in FY24 with long products accounting for 60percent, flat products 30 percent, tubes and pipes 7percent, and other products 3percent of total iron & steel products.
According to WeBoc data the imports of iron & steel products were 5.60 MMT of which 50percent was scrap and exports of CR Coils and pipes were 0.10 MMT in FY 2024, Thus, total consumption of iron and steel products was 13 MMT in FY 2024, out of which 60 percent was used in construction and infrastructure, 25percent in other sectors, 10 percent in automotive and transportation, and 5 percent in appliances and consumer goods.
As per estimates of the 2023, Pakistan's production of steel was 0.28percent and consumption was 0.4 percent of the world. Similarly, per capita use of steel was merely 36kg as compared to the world at 247kg - 6.5 times higher than that of Pakistan
Accordingly, the report has been prepared. The key findings of the report are as follows: (i) analysis of Pakistan's iron and steel industry shows under-utilized production capacity, rising imports, and tariff distortions with high energy costs, affecting both domestic manufacturers and downstream industries;(ii) despite significant installed capacity, production trends in long and flat steel products have been inconsistent. Long steel capacity increased from 7.0 million MT in FY23 to 8.0 million MT in FY25, yet production fluctuated, dropping to 3.5 million MT in FY24 before recovering to 5.4 million MT in FY25.
Similarly, flat steel products, including color coated coils, galvanized steel, and cold rolled coils, show underutilization despite sufficient capacity;(iii) billets and steel bars receive high protection, with Effective Protection Rates (EPRS) of up to 123.11percent. Flat steel products also have moderate EPRS (on basis of effective rate of duty).
While this supports domestic production, it may also inflate prices for end-users, limiting competitiveness in export markets and affecting industries dependent on these inputs; (iv) high tariff protection for billets and bars coupled with high energy & financial costs and economic slowdown have raised steel prices, affecting construction, manufacturing, and infrastructure projects;(v) a balanced tariff structure, efficiency-driven cost reductions, and targeted policy measures are essential to ensure Pakistan's steel industry remains competitive and contributes to national economic development; and (v) in flat steel products, an encouraging trend has been witnessed with reasonable potential for exports. This segment of steel sector exported CRC, galvanized and coated sheets to the extent of $ 363 million to markets like USA and Canada.
The report recommended some proposals related to tariff structure which are as follows: (i) the duty on iron and steel basic raw materials such as iron ore, scrap, direct reduced iron and HMS may be reduced to zero percent, to ensure an uninterrupted supply of inputs and reduction in the cost of production;(ii) re-rollable scrap and billets/ingots are secondary products which may be subject to similar duty structure;(iii) for finished products like rebars, wire rods, and alloy bars, tariff ranges from Customs Duty 11-20percent, with Additional Customs Duty (ACD) of 2-6percent and Regulatory Duty of 10-30percent. These tariffs need to be rationalized by removing ACDs and reducing RDS to 10percent in the next three years;(iii) as compared to long steel products, the tariff structure of flat steel products, i.e., Cold Rolled Coils (CRC), galvanized, and color coated sheets are already on the lower side.
Therefore, no change in tariff structure of these products is proposed; and (iv) Hot Rolled Coils (HRC) are not produced locally, therefore, zero percent duty is proposed on HRC to ensure cost-effective raw material access for downstream industries.
NTC argued that beyond tariff adjustments, fiscal interventions are essential to address production costs, particularly energy expenses. Electricity is a major cost component for the steel sector, and Pakistan's electricity rates are significantly higher than regional competitors, making domestic steel production uncompetitive in both local and export markets. To mitigate this, electricity tariffs for steel manufacturers should be fixed at 7 cents per unit, ensuring cost predictability and competitiveness.
Furthermore, 85percent of Pakistan's steel production relies on imported raw materials(scrap/DRI), making the sector highly vulnerable to exchange rate fluctuations. A stable exchange rate is critical to ensuring cost-effective production, and borrowing rates should be reduced to single digits to ease financial pressures on manufacturers and facilitate investment in capacity expansion.
Given the strategic importance of iron and steel in infrastructure and industrial development, a 10-year sectoral policy should be introduced to attract long-term investment. This policy should focus on backward integration (e.g., local iron ore extraction and processing) and forward linkages (e.g., development of high-value steel products for exports). Creating export surplus should be a key objective, ensuring that Pakistan's steel sector remains competitive in the global market.
Copyright Business Recorder, 2025
