[🇧🇩] Steel Industry in Bangladesh

[Saif]

Steel prices set to rise in Bangladesh: analysts

The US dollar rate hikes will fuel steel raw material cost, they said at Bangladesh International Trade Summit

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Steel prices set to rise in Bangladesh: analysts
The US dollar rate hikes will fuel steel raw material cost, they said at Bangladesh International Trade Summit

Globally steel raw material prices are stable now, but Bangladesh will have to spend higher for its import because of the US dollar rate hike since the introduction of the crawling peg system, analysts said today.

"Despite the stable international rates, the import cost of scrap steel will increase in Bangladesh as US dollar prices have increased substantially in the country," said Abhijeet Mahanta, marketing and sales director for South Asia at Atlas Commodities in India.

He spoke at a session of the fourth Bangladesh International Trade Summit 2024 at Pan Pacific Sonargaon in Dhaka. Bigmint, a platform for price reporting, market intelligence and consulting for commodities of India, organised the summit.

Bangladesh's steel sector annually needs six million tonnes of scrap steel, where imports meet 90 percent of the demand and the rest come from the local market, the industry insiders said.

Import of finished steel is prohibited in Bangladesh so the local millers need to collect scrap steel from local and foreign sources, said Sanjoy Kumar Ghosh, head of supply chain management at BSRM Bangladesh.

The steel sector has great potential in Bangladesh, as the country needs huge infrastructure development which will require a continuous flow of steel, he said.

Steel demand is low at present in Bangladesh due to the ongoing economic vulnerability, but, Ghosh believes, the situation will improve in the next one year.

The steel millers suffered supply chain disruptions in the last few years because of the Russia-Ukraine war, he said.

"The use of scrap steel is increasing in the USA and India, for which we are now looking for new sources in Australia, Malaysia and West Africa to meet our demand for steel raw materials."

The growing demand has also created a supply shortage of scrap steel, said Salehin Musfique Sadaf, director of GPH Ispat Bangladesh.

India annually imports 70 million tonnes of scraps to meet its national demand of around 90 million tonnes, said Ranjit Kumar, head of sponge iron trading at Tata International of India.

The global prices of scrap steel may increase in the days to come, but Bangladesh would not face any scarcity of such raw materials thanks to its geographical location, he said.

Zain Nathani, managing director of Nathani Group of Companies in India, moderated the session of the two-day summit, which will end tomorrow.

About 450 delegates, including industry leaders, policymakers, traders, and investors, from 35 countries, including Bangladesh, Germany, Australia, Turkey, India, Austria, Russia, Taiwan, China, Japan and America, took part in the summit.

Mill owners along with mill machine manufacturers, industrial consultants, materials suppliers and industrial group engineers also participated in this conference.​

 

[Saif]

SS Steel sees profit shrivel as it expands footprint

SS Steel Ltd has registered higher turnover thanks to increased sales ever since the steelmaker started acquiring several companies in 2020, but its overall profit has dropped.

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SS Steel sees profit shrivel as it expands footprint

SS Steel Ltd has registered higher turnover thanks to increased sales ever since the steelmaker started acquiring several companies in 2020, but its overall profit has dropped.

Sales of SS Steel rose 41 percent year-on-year to Tk 1,642 crore during the July-March period of the current fiscal year. Still though, the company notched a profit of just Tk 3.9 crore, indicating that its net profit margin was 0.23 percent, the lowest among all listed steelmakers in operation.

The profit margin of S Alam Cold Rolled Steels stood at 0.64 percent in July-March while that of GPH Ispat was 1.45 percent, BSRM Steels was 4.37 percent, and BSRM Ltd was 5.20 percent.

A company's profit margin gauges the percentage of its revenue that remains as profit after subtracting all expenses, such as raw material and transport costs.

As per company disclosures, SS Steel has acquired Saleh Steel Industries, Al-Falah Steel, Super Steel, and Peninsula Steel Mills over the past five years, investing large sums to revive production at the units.

As a result, sales of SS Steel rose but its profitability has been falling in line with other financial indicators mainly due to higher net finance and raw material costs.

The net finance costs, or interest due on loans, amounted to 5 percent of turnover in FY2020-21 while it rose to 8 percent in FY23.

Therefore, investors and stock market analysts have started questioning the logic behind SS Steel taking over the companies since it remains unclear who actually benefited from the move as general investors did not.

During its trading debut in 2019, SS Steel had the highest net profit margin among all listed steelmakers. This helped the company raise Tk 25 crore through its initial public offering. Currently, it has the lowest profit margin in the steel industry, according to an official of an asset management company.

Citing how there should be a logical explanation for SS Steel's shrivelled profits, the official suggested the stock market regulator should investigate whether its profit margin reduced for business reasons.

The asset manager also said that some companies show better performances before getting listed in a bid to attract investments. But following its trading debut, the company's performance weakens. Therefore, the regulator should also investigate if SS Steel is this type of case, he said.

The profit margin of SS Steel was 12.51 percent in FY19 while it was 12 percent and 14 percent in FY20 and FY21, respectively.

The profit margin of GPH Ispat was 6 percent, 3 percent and 5 percent, respectively, over the same three years. Meanwhile, the profit margins of BSRM Ltd and BSRM Steels ranged from 1.92 percent to 8 percent during the three-year period.

The official added that the Bangladesh Securities and Exchange Commission (BSEC) should look into the reasons behind SS Steel's present situation as it could be linked with the interests of investors.

In line with the reduced profit margin, the dividend payments also decreased over the years: SS Steel declared a 15 percent stock dividend for FY19 while it was 10 percent the following years to FY22. It announced a 2 percent cash dividend for the last financial year.

In 2020, the listed steelmaker bought Saleh Steel Industries for Tk 25 crore and invested another Tk 134 crore to ensure the company's smooth operation.

SS Steel acquired Al-Falah Steel in 2022 and has so far invested around Tk 184.14 crore in the company.

A year later, the company took over the fixed assets of both Super Steel Ltd and Peninsula Steel Mills by investing around Tk 130 crore as a part of its business expansion.

The fund was given from the company's retained earnings and by taking bank loans, as per its disclosures on the Dhaka Stock Exchange (DSE). As a result, the company's debt to equity ratio increased.

In FY19, the debt to equity was 0.48 while it rose to 1.24 in FY22, according to the annual reports of SS Steel.

The ratio indicates how much debt a company is using to finance its assets relative to the value of its shareholders' equity. A high debt to equity ratio generally means the company is aggressive in financing its growth with loans.

The manufacturer's finance costs are also rising.

The net finance cost was Tk 26 crore in FY20 while it soared to Tk 121 crore in FY23. In the first nine months of the current fiscal year, the net finance cost was over Tk 100 crore.

Last month, SS Steel got approval from the BSEC to issue bonds worth Tk 500 crore in order to repay bank loans, and expand and modernise the existing projects. But higher costs ultimately hit the bottom line.

Before acquiring these companies, SS Steel posted a profit of Tk 43 crore in FY20. It rose to Tk 70 crore the following year but started falling after that.

SS Steel saw profits of Tk 61 crore and Tk 1.76 crore in FY22 and FY23, respectively.

In its financial reports, the company blamed higher raw material and utility costs alongside the depreciation of the local currency for its reduced profit in FY23.

On April 28, The Daily Star sent an email to the company secretary of SS Steel seeking comments about its performance. However, he did not respond as of yesterday.

BSEC Spokesperson Mohammad Rezaul Karim said SS Steel did not need the regulator's approval to go for the acquisitions and had submitted all the required paperwork.

"We are examining the papers and prepared some queries on some issues. If the company can't give proper answers, we will take action."​

 

[Saif]

'Steel industry now a risky place for fresh investments'

Chowdhury also said it is really difficult to predict when the demand for steel will rise once again as no one knows when the ongoing economic crisis will let up.

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'Steel industry now a risky place for fresh investments'

Sumon Chowdhury, secretary general of the Bangladesh Steel Manufacturers Association (BSMA)

It has become extremely risky to invest in the steel industry of Bangladesh as the country is suffering from economic vulnerability amid sustained inflationary pressure.

Besides, the combined production capacity of local steelmakers already exceeds domestic consumption by around 41 percent, indicating an oversaturated market.

The steel industry's overall production capacity was about 1.10 crore tonnes last year against demand for 65 lakh tonnes, according to Sumon Chowdhury, secretary general of the Bangladesh Steel Manufacturers Association (BSMA).

Still, the country's annual steel manufacturing capacity will likely to increase by another 20 lakh tonnes within the next year as small producers are expanding their capacity.

There are around 120 steelmakers in Bangladesh, with some 40 large companies dominating more than 90 percent of the market, Chowdhury said in a recent interview with The Daily Star.

Referring to the BSMA's latest market assessment, he said steel consumption amounted to about 75 lakh tonnes in 2019 but reduced last year as the implementation of development projects slowed in the face of reduced public spending.

But other than cost cutting to replenish the state coffer, steel consumption in the public sector has decreased to 45 percent from 60 percent of the demand as various mega projects requiring large amounts of the material are nearly complete.

Chowdhury also said it is really difficult to predict when the demand for steel will rise once again as no one knows when the ongoing economic crisis will let up.

"The demand for steel will not increase unless the economy becomes more stable," he added.

Chowdhury pointed out that aside from lower demand, the steel industry is facing difficulties because of the gas crisis and higher foreign exchange rate while sustained inflationary pressure has reduced the purchasing power of individual consumers.

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[Saif]

Steel sector for easing of tariff rules in raw material import

Businesspeople and entrepreneurs on Saturday urged the interim government chief Muhammad Yunus to take necessary steps for simplification of the product tariff process and...

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Steel sector for easing of tariff rules in raw material import
United News of Bangladesh . Dhaka 17 August, 2024, 22:06

Businesspeople and entrepreneurs on Saturday urged the interim government chief Muhammad Yunus to take necessary steps for simplification of the product tariff process and increasing port capacity in importing raw materials and capital machinery for the iron and steel industry.

This call was made in the standing committee meeting of the Federation of Bangladesh Chamber of Commerce and Industry on iron, carbon steel, stainless steel, and re-rolling industry, held at FBCCI’s Motijheel office on Saturday.

Chairman of the standing committee and managing director of Shahriar Steel Mills Limited SK Masudul Alam Masud presided over the meeting.

FBCCI director Md Amir Hossain Noorani was present as the director-in-charge of the committee.

On this occasion, the business leaders stressed urgent action to ensure quality and uninterrupted supply of gas and electricity to all types of industries including the iron and steel industry.

FBCCI president Mahbubul Alam attended the programme virtually as the chief guest.

The iron and steel industry plays a very important role in the infrastructure development of the country, he said.

The FBCCI president urged the businesspeople to unite to eliminate the existing crisis in this industry.

He said, that not only in the steel industry but in all sectors, the tariff process of imported goods is a big challenge.

‘We have been hearing for a long time that the assessment value of imported goods at the port is much higher than the invoice value. We have to work in this field,’ he pointed out.

The FBCCI president also expressed optimism that the current NBR chairman would be sincere in facilitating business in the country.​

 

[Saif]

Steelmakers face capital shortage as sales nosedive

Steelmakers in Bangladesh are facing a severe working capital shortage due to the sharp rise in the US dollar exchange rate and a slowdown in sales, according to industry insiders.

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Steelmakers face capital shortage as sales nosedive

Steelmakers in Bangladesh are facing a severe working capital shortage due to the sharp rise in the US dollar exchange rate and a slowdown in sales, according to industry insiders.

"The ongoing economic downturn, inflationary pressure, high interest on bank loans, and increased gas and electricity costs have put steelmakers at financial risk," said Sumon Chowdhury, secretary general of the Bangladesh Steel Manufacturing Association (BSMA).

Now, most steelmakers are facing difficulty in paying their staff salaries and bank loan instalments, said the secretary general of the association that represents more than 40 major steel producers in Bangladesh.

BSMA data shows that about Tk 75,000 crore has been invested in the local steel industry, which employs roughly 10 lakh people both directly and indirectly.

Chowdhury said that of the total investment, around 65 percent came from bank finance. But now, the investors are struggling to pay their loan instalments due to poor revenue generation.

As such, the steel industry may not survive if the situation prolongs, he added.

Chowdhury explained that steelmakers are now facing a significant working capital shortage as the US dollar price has increased to between Tk 122 and Tk 125 from Tk 85 over the past two years.

He said this unexpected surge raised concerns about the stability and future of the steel industry.

Earlier, on October 16, the BSMA wrote a letter to the Bangladesh Bank, requesting necessary measures to support the steel industry.

In the letter, BSMA President Mohammad Jahangir Alam urged for forming a special fund for providing cheap loans with a 2-year grace period to steelmakers that incurred losses for the appreciation of the US dollar.

He urged the central bank to increase the customer credit limit for commercial lenders to 30 percent from the existing 15 percent and provide additional working capital loans at low interest.

Alam, also chairman of GPH Group, said while import prices are rising in the global market, local prices are not being adjusted accordingly. As a result, many businesses are unintentionally becoming loan defaulters.

Furthermore, the BSMA asked the central bank to grant a repayment period of 16 years for rescheduled and overdue loans.

"In these cases, down payments should be set at 1 percent regardless of the loan amount considering the industry's present condition," the BSMA said.

According to the Trading Corporation of Bangladesh (TCB), the price of 60-grade mild steel came down to Tk 92,500 per tonne from Tk 93,000 on Monday.

Amid nationwide protests, curfews, a political changeover and ensuing uncertainty, the past three months have been brutal for the steel sector, with top suppliers like Bangladesh Steel Re-Rolling Mills (BSRM) and Anwar Ispat warning of increasingly bleak conditions.

As mills faced losses on every tonne of steel they made, many are lately opting to shut down their furnaces, according to the industry people.

And in view of the current economic crisis and challenging conditions, industry people are calling for the suspension of Group CIB report requirements for at least two years to protect business interests.

The BSMA believes that such a suspension would bring positive changes to the country's economic growth and investment environment.

"If one unit within an industry faces difficulties, it should not result in negative classification for all units in that group," the BSMA said.

On condition of anonymity, an official of a steelmaker said two letters of credit were blocked back-to-back as a director of his company defaulted on a personal loan, putting nearly 2,000 employees' jobs at risk.

As per BSMA data, there are 190 steel plants in the country, with around 40 being advanced facilities.

Tapan Sengupta, deputy managing director of Bangladesh Steel Re-Rolling Mills, said steel mills are currently incurring losses for producing each tonne of rod. In this situation, some small manufacturers are completely shutting down their furnaces.

This is because mill owners are selling their products for less than their production cost just to cover workers' salaries and utility bills, he added.

Sengupta also said new construction projects in semi-urban and rural areas have stalled as representatives of local government offices left during the political changeover, leaving official approvals in limbo.

"We do not know if the situation will improve," he added.

Public construction and government mega projects, which account for about 67 percent of the local steel demand, have been declining since July and came to a complete halt following the political changeover on August 5.

Additionally, high inflation has weakened the real estate sector, further impacting the demand for steel, the BSMA said.​