The Nation – Industry fears closure as steel billets, ship plates cost gap widens

(Written by Salman Abduhu)

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27 July 2013 - LAHORE – Cost difference between ship-plates produced by ship-breaking industry and steel billets by local steel manufacturers, which should not exceed Rs1,200 per metric ton, has crossed Rs10,000 per metric tons, rendering local steel industry vulnerable and subject to unfair competition by ship-breaking industry.

Industry sources said that since ship-breaking industry pays sales tax only on 70 percent of the total weight of the scrap ships which are brought for dismantling at the Gaddani Ship Breaking Yard and it neither pays 20 percent customs duty nor 17 percent sales tax on the remaining 29.5 percent part of the scrap ships since the past many years, the local steel manufacturing plants are facing unequal competition making them suffer huge losses.

It may be noted that ship breaking is paying negligible custom duties and sales tax on a few tons compared to thousands of tons of weight of the vessel constituting 29.5 percent.

“Steel manufacturing sector is already in a very dismal position due to unfair competition by the local ship breaking industry, which only pays sales tax on 70.5 percent of the total weight of the scrap ships, and the decision to further increasing the power tariff by Rs2.5 per unit would make steel manufacturing sector further uncompetitive leaving no option for the domestic industry but to close down its business.”

They said that Rs2.5 increase in power tariff would make us more uncompetitive compared to local ship plates hence the equal impact should be levied on ship breaking industry otherwise the difference between ship plates by ship breaking and steel billets by local manufacturer would increase to Rs13,000 per ton from current Rs10,000 per ton.

They demanded FBR to impose additional taxes on local ship breaking industry by imposing additional custom duties to not only offset the increase in power cost but also to provide a level playing field.

Pakistani steel sector is facing fierce competition by Chinese steel exporters where electricity rate is on average of $68/MWh compared to Pakistan where power cost is whooping $115/MWh almost double to what Chinese government offering to its industry.

Industry sources said that average power rate of 27 countries known for their steel production is about $103/MWh, while in Pakistan it is whooping $115/MWh which itself reveals that Pakistani steel industry is facing worst ever business climate in the country and still trying to compete with the giants at its borders.

Domestic steel sector has already lost lot of business to cheap imports in the country and subsequently lost its production value.