The listed steel manufacturing companies have been struggling due mainly to volatility in raw-materials and utility cost, depreciation of local currency, high bank interest rate, bleak condition in banking sector, competition from new entrants and slow implementation of government projects.
There are seven steel making companies listed on the country’s stock exchanges and profits of all of them except one continued declining.
Profit of Bangladesh Steel Re-Rolling Mills dropped by 33 per cent, that of BSRM Steel 4 per cent, that of Ratanpur Steel Re-Rolling Mills 20.85, that of S Alam Cold Rolled Steels decreased by 16 per cent in the financial year ended on June 30, 2019 compared with that in the previous year.
The companies also witnessed a fall in profits in the first quarter (July-September) of 2019 against the same period in the previous year. However, profit of GPH Ispat increased slightly in FY19 but dropped in Q1.
Appollo Ispat Complex disclosed its financial reports for nine month ended in March, 2019 and the company declared loss in the period.SS Steel was the only listed steel maker which declared an increase in profit in the financial year 2018-19 and in the first quarter (July-September) this year.
According to a research by EBL Securities Limited, a brokerage firm, uneven competition from new entrants, price fall in international steel market for finished goods, dependency on imported raw-materials (iron scrap), transport, port facilities and tariff rationalisation, high interest rates are the key challenges for the development of local steel industry.
The research also revealed that almost 80 per cent of the cost of steel manufacturers was attributed to raw material consumption, on average 4.5 per cent of the cost was attributed to finance expenses and 2.3 per cent of the total cost was attributed to fuel, power and gas cost.
Volatility in raw-material and utility cost along with frequent changes in regulatory duty structure results in high volatility in retail prices of steel products while increased market competition is squeezing profit margins of the companies, it said.
Besides, depreciation of the local currency against the foreign currency increased the overall import cost of the raw-materials that also affected production cost of the industry.
Moreover, rising gas and electricity prices and prevailing high interest rate for bank loans are causing higher finance expenses for the steel manufacturing companies.
The government slowed down releasing funds for the development projects after the national elections. Government consumption of rod dropped in the first quarter of the current fiscal year (July-September period).
Meanwhile, persistent liquidity crisis in the banking sector may continue to pose challenges to the sector as liquidity crisis has lessened the loan ability of the banks, causing de-growth in sales volume of steel products as well.
The private sector consumption of rod was also down, owing to a slowdown of the real estate sector.As steel is a low-margin product, any slight change in the raw-material cost significantly affects the profitability of the manufacturers, according to the research.
Bangladesh is one of the lowest consumers of steel products in the world.According to the World Steel Association (WSA), average per capita steel consumption in the world was 224.5 kilogram in 2018 while that in Bangladesh was 45kg in the same year.
According to the research report, the sector is expected to grow further driven by increasing purchasing power and ongoing infrastructural developments by both public and private sector in the country.
Acceleration of government’s big infrastructure projects under its annual development programme, undertaking new projects and revival of the local real-estate manufacturing companies will boost the steel consumption locally, the research report observed.
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