STEEL INDUSTRIES OF BANGLADESH

REPORT ON FOCUS
The report “Bangladesh on its way of becoming self sufficient in rod production, export is also a possibility” by Shuvankar karmakar, that was analyzed here, was published in the Daily Prothom Alo, on 17th November, 2012.
BACKGROUND
Bangladesh Steel industry is emerging as one of the major industrial sectors of the country. It consists of small up to the largest scale of steel melting and re-rolling factories across the country that mostly produce deformed bar rod of different grade (40, 60, 500), angel, channel and coil for the construction industry. Though the history of Steel Industry is not older one but it can make a glorious future.
Before 1971 Bangladesh did not have any steel mill and even after the liberation there were only a few steel factories in the country. In 1990s the actual development began in this sector through a revolution. During that period the building constructing agencies or developer companies came forward to build modern infrastructure. Then with the increasing demand, new investors started investing in steel or rod production.
In 2012 we have almost 400 mills across the country including Dhaka, Chittagong. Although most of them are manual steel plants, 30 mills among them are automated.
Many steel producing companies have gained reputation as a brand. Among them, BSRM, KSRM, Anwar Steel, AK steel, Rahim steel, Abul khayer Group are worth mentioning. Today the highest steel producing company is BSRM. They are doing business for 60 years. Their production is almost six and half lakh ton per year which meets 26% demand of the local market.
Now grade 60 rods are being slowly replaced by g500 rods which a number of rolling mills in our country are now manufacturing. With g500, the real estate builders and developers can also save minimum 15% further quantity of steel than g60 but then they have to maintain good quality of concrete which is easily available and possible to us at site.
According to the association of auto re-rolling and steel mills, the total investment of local companies in rod manufacturing is about 30 thousand crore taka. This sector has 13% growth rate every year. Almost one million workers are involved directly and indirectly in this sector.

POTENTIAL
“Approximately, the local demand for rod is about 30 lakh tonnes per year,” according to Aameir Alihussain, managing director of BSRM Steel Mills, which is almost completely supplied by local companies. So Bangladesh has become self sufficient in steel manufacturing. Bangladesh already exports steel products like corrugated iron and plain galvanized sheet. Now it is possible to export standard quality rod, because the local factories have capacity to produce 80 lakh tonnes every year which is more than the local demand.

CHALLENGES
Rod production is facing some problems which were mentioned in the article-

Raw material
Bangladesh does not have iron ore. So Steel industries use different types of raw materials; such as ingot and billet, to manufacture rod, angel and channel; cold-rolled sheet is used to produce coil. The factories melt ship scraps for ingot, while billet and sheet is imported. Improved quality molding scrape is also imported. This is used to produce good quality ro. But the price of the raw material has increased in the global market. Besides due to port management and geographic reason, we have to spend $20-$25 more than any other country to import each ton of raw material, which makes it difficult for local companies to compete with the foreign companies.

Gas and electricity supply
According to Aameir Alihussain, managing director of BSRM Steel Mills, for the last six-seven months they are getting only 12 hours gas supply. New mills are not being constructed as government has all but stopped giving gas to new factories. Abu Bakar Siddique, general secretary of Bangladesh Re-Rolling Mills Association, said: “We're not getting an adequate supply of gas and are being forced to use costly coal and furnace oil to run our factories”. Because of this, the production is being hampered. Also for many reason the price of the products necessary for rod manufacturing is increasing. For this the GP growth of the nation is also being affected.

Quality of the product
Ship breaking industry provides 10-15% demand of the raw material. This is alarming. Because ship scrapes produce low quality rod. Almost 50% of the rod produced is still of low quality. This is creating a barrier for the export of steel. Besides it is also a danger for the nation. Because structures built with this low quality steel can cause severe damage during a small natural calamity.
Bank interest rate
High bank interest rate is creating serious problem for this industry. It has already dealt a serious blow to the industries, as they are not getting funds to buy raw materials at low interest rates. Besides the latest move to withdraw the upper cap on bank lending rates has also pushed production costs up.
PERSONAL COMMENTS
There are some other issues that the steel industry is facing was not mentioned in the report. Some important points I found out-
Automated factory
We have very small number of automatic plants for which production is suffering. This kind of plants is costly. It takes two to five years to set up an automatic plant, and the cost ranges between Tk 100 crore to Tk 3,000 crore, depending on the plant size and production capacity. But there is a pay-off for the big investment and lead-time: productivity. Automatic plants produce better steel; have higher capacities and lower production costs. Soon, many believe, manual factories will prove unsustainable in the competitive market. The manual steel plants are also often hazardous to life and the environment, but in the automatic plants it is not so.

Non-tariff barriers
It is good that India has given duty-free access to Bangladesh steel products into their country. Unfortunately non-tariff barriers are still there and unless these are removed we cannot make any headway to exporting to India and that too only to the 7 north-eastern states of India. According to the business owners they cannot compete with iron ore based industries in India on the western side of Bangladesh. It is quite strange that while Bangladesh has not imposed any bar on import from India but India will not allow any companies in Bangladesh to export to India unless the said company is registered with Bureau of Indian Standard (BIS). Besides they have to pay levy to the BIS on production.
Effects of ship breaking Industry
There is a lawsuit against the ship breaking industry for environmental damage by the environmentalists. Although melting industries producing billets will not suffer in a big way because if there is a shortage of scrap ships, it can be imported, but small ship scrap based rolling mills will be in trouble and thus huge number of labor force will be rendered jobless. Roll-able scraps are not available in the world market. There are small houses which do not need quality rods so they buy cheaper rods with low strength from ship plates which of course is of good quality because it is Lloyd tested steel.
Lack of government policy
Steel sector is surviving on its own luck, merits and hard work. As Aameir Alihussain says, “In the last 35 years of my experience in running our group of industries, I have never been called by any government agency to get my views on the steel industries, their problems or suggestion. Not only this. We have never been given any replies or called for discussion on our various suggestions, applications etc that we make to the government agencies. We the private sector can turn the country around very quickly, if we are supported actively and objectively by the relevant government offices. There is no policy document for the steel sector.”

Cost of production
The cost of rod manufacturing has gone up in recent years for several reasons. One of them is depreciation of taka against US dollar. The cost of producing a tonne of 60-grade rod has increased by Tk 18,000 between January 2011 and January 2012, mainly because of a depreciation of the taka against the US dollar. “The price hike will continue for as long as the dollar continues to appreciate”, said Md Shahjahan, secretary general of Steel Mills Owners Association. Another reason is increase in electricity price. It should not be increased more than once a year. But Bangladesh Energy Regulatory Commission does this 3-4 times a year. Because of this high production cost steel industry is suffering loss. SK Masadul Alam Masud, chairman of Bangladesh Auto Re-Rolling and Steel Mills Association added. “If the prices of all raw materials and production cost go up, millers cannot increase the retail price outright we have to increase the price in phases. By the time we reach breakeven, we incur losses. We cannot stop selling in fear of losing market”.

RECOMMENDATIONS
It is extremely important that some remedial measures are to be taken for the effective development of the Steel sector of Bangladesh. If the appropriate steps are taken Bangladesh will not only maintain the current market, but also expand her global market share, increase the value added to its exports, and widen the range of products it produces. The main steps that must be taken to realize these goals are as follows: * Steel makers of the country say, to improve the industry, the government will have to first withdraw all the duties on the import of scrap steel. That includes both scrap vessel and melting scrap. The importers have cited the example of India, which has already done the same. * There is also an anomaly in the tariff structure that needs to be rationalized. The tariff on the scrap vessel is Tk 1000 per tonne for the ship breakers whereas for the operators of steel and re-rolling mills the amount is about four times as high at Tk. 38,00 per tonne. So, to save the local steel industry, the government may follow the footstep of India by withdrawing the duties on scrap steel import until the price for the same comes down to a tolerable level in the future. * The industry needs continuous electricity and gas supply. Even the owners are ready to pay higher price if government can ensure steady supply. They suggest that, reduction of system lost, prevention of power that can help to provide stabilized power. * Development of roads, railways and modernization of Chittagong port are necessary to reduce the price of the rod. * Bank interest rate needs to be reduce to a reasonable figure * Non tariff barriers should be removed. Md Harun-or-Rcshid, information director of BSMOA, said that the government should lobby with the Indian government so that they accept the standardization of Bangladesh Standards and Testing Institution. * The industry leaders also urged the government to withdraw the pre-shipment inspection arrangement. Instead of getting services, they face harassment, they added. Pre-shipment inspection firms charge Tk 500 to certify a ton of raw materials. * The steel exporters have also sought simplification of the process of returning the duty at the time of export, which they pay on the imports of raw materials. They complained that they face hassles in recollecting such duty from the government. “We have to visit about 12 different offices for every particular consignment of export to get our duty back against export, which is really cumbersome”, said Hefazatur Rahman of PHP Steels. If the government allows steel product makers to pay taxes after bringing those under bonded warehouse, the sector will really be benefited to enhance the export volume. * The incidents of mugging also worry the business leaders. The BSMOA information director said the law-enforcing agencies should step up efforts to prevent the growing incidents of mugging of trucks and vans carrying rods in the city as well as other parts of the country. * The government should set up a separate ministry for the steel sector to help the sector grow.
CONCLUSION
Steel industry is known as the mother of all industries. Without it infrastructure development of our country is impossible. Besides Bangladesh is at risk of severe earthquake in the next several years. So we need good quality rod for construction sector for our own safety. Moreover this sector has the potential to become a major export zone like RMG in future. This industry has come a long way on its own. But now it needs government intervention so that it can flourish more. Therefore government needs to do whatever they can to help this sector.