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Pakistan Steel - harbinger of engineering industry.

STEEL is a basic input for economic growth and it plays a very important role in the industrial development of a country. Thus in many developing countries creation of facility for indigenous steel production is rightly considered as a national project which aims at increasing self-reliance and accelerating the process of industrialisation.

The foundation of Pakistan Steel was laid in 1973 and the first integrated steel mill of the country is in operation since 1985. It is difficult to estimate the loss suffered by the national economy because of the absence of a steel mill for over 30 years. But indications are there. These include the slow growth of the capital goods producing industry, backwardness in technology, heavy imports of capital, goods, low per capita income despite richness in resources, heavy debt burden and pressure on balance of payments.

It is well known that at the time of independence, Pakistan had no industrial unit worth the name and yet the mechanical mindedness of people was manifest from the house hold type of engineering workshops, producing varieties of machinery and components and nation started hoping and dreaming about its own steel mill in the early fifties. Eventually Pakistan decided to set up its first integrated iron and steel complex with the financial and technical help of former USSR. The decision was taken to establish a coastal based steel mill at Karachi in 1972. The contract for the supply of equipment was finalized in July, 1975 and the period of one year up to July, 1976 can be truly described as the year of infrastructure. The infrastructural development made it possible to start construction and installation of huge steel complex.

Due to phase-wise execution of the project, the total completion has been about 10 years. The three phases of commencement of work were firstly the .... "Hot Metal Stage"comprising Coke Ovens,. Blast Furnaces, Sintering Plant and Thermal Power Plant commenced its production in 1981. The second stage which commenced in late 1977, was the "Steel Making Phase" which comprised a huge Steel Making Complex, One Bloom Caster and two Slab Casters with a designed/installed capacity to produce 1.1 million tons of raw steel per annum. This complex was completed in 1982. The third stage which comprised a Billet Mill, Hot Strip Mill and Cold Rolling Mill was completed in 1984. Later "Billet Caster" was also commissioned in 1989. The Product mix of Pakistan Steel comprises the following:-
(Quantity in Thousand Tons)

Main Products Output Saleable

Billets (Rolled) 260 260
Cast Billets 400 400
Hot Rolled Sheets/Coils 790 445
Cold Rolled Sheets/Coils 200 90
Galvanized Sheets Coils 100 100
Formed Sections 120 120
Coke 970 215
Pig Iron/Hot Metal 1230 135

Intermediary Products

Blooms 275 --
Slabs 825 --

By-Products

Coaltar 46.5 46.5
Ammonium Sulphate 17.2 17.2
Blast Furnace Gran. Slag 250.0 250.0
Blast Furnace Boulder Slag 75.0 75.0
Converter Slag 150.0 150.0


Steel consumption and economic maturity have a very close link. In terms of steel intensity per capita, Pakistan is at the bottom of the curve. India, Turkey, South Korea are all ahead of Pakistan. However, the commissioning of Pakistan Steel has provided an opportunity for the country to march forward rapidly on the road to industrialization, with steel acting as the key to its development.

Production

Capacity utilization is considered an index of productivity. Pakistan Steel attained the production of 810,464 tons of raw steel at 73 per cent capacity utilization during 1987-88. But it declined to 766,716 tons (70%), 662,939 tons (60%) and 747,000 tons (68%) during 1988-89, 1989-90, 1990-91. However, takeover by the present management in January-1992 has brought a complete turnaround. The raw steel production during 1991-92 was 853,000 tons (78%) which has risen to a record high output of about 912,986 tons representing 83 per cent capacity utilisation in 1992-93.

Pakistan Steel attained a production of 92,149 tons of raw steel or 101 per cent of capacity during December, 1992 which was all time record of high production for a month. Similarly, Iron Making Complex also gave record production of hot metal (104% of capacity) in December, 1992.

Sales

The sales of Pakistan Steel products have shown gradual increase from Rs. 3531.00 million in 1985-86 to Rs. 5236.00 million in 1986-87, Rs. 6550.00 million in 1987-88 to Rs. 7565 million in 1988-89, Rs. 7689.00 million in 1989-90 to Rs. 9351.00 million in 1990-91 and Rs. 9558.00 million in 1991-92. However, sales turnover of Rs. 11870.00 million during 1992-93 is a record achievement. It has surpassed the sales target of Rs. 10831.00 million by 8 per cent. What is more important, however, is that the high sales revenue is mainly due to increased sales volume without resorting to any arbitrary price hikes.

Profit/(Loss)

Pakistan Steel sustained heavy losses up to 1991-92. However, in the year 1991-92 out of a total loss of Rs. 868.00 million a loss of Rs. 633.00 million was suffered in the first six months i.e. July-December, 1991. The trend of loss was arrested in the next six months (January-June, 1992) when it was restricted to Rs. 235.00 million. On finalization of accounts, a profit of about Rs. 150.00 million against the budgeted loss of Rs. 296.00 million is expected during 1992-93. In view of the satisfactory financial results, the management has for the first time distributed an honorarium equivalent to one month pay amongst all employees as incentive money.

Cost Controls & Liquidity Position

Pakistan Steel had been plagued with continued adverse liquidity conditions. This situation which was primarily due to financial indiscipline has had damaging effect on the Mill's financial credibility. This situation was taken due care by the present management which introduced a strict financial discipline and plugged various avenues of waste. By December, 1991 labour related costs had gradually soared to 29 per cent of cost of production which was far in excess of industry average. This has now been brought down to a more realistic figure of 22 per cent. Monthly overtime which had peaked at Rs. 39.00 million in 1991 has now reduced to under Rs. 4.00 million. Medical expenditure which had gone up to Rs. 33.00 million per month in 1991 has come down to less than Rs. 13.00 million. Similarly, transport expenditure has been brought down from Rs. 21.00 million per month in 1991 to about Rs. 10.00 million. Production incentive which used to be paid at an average rate of Rs. 11.00 million per month has now reduced to Rs. 0.2 million with increased output and improved quality. The Stores and Spares consumption decreased from 107.00 million per month in 1991 to Rs. 88.00 million at present and financial expenses which were on the average of Rs. 65.00 million per month in 1991-92 have now been reduced to Rs. 45.00 million per month.

As a result of above mentioned financial discipline and strict cost controls, Pakistan Steel has been able to gradually pay off by December-92, the liabilities due for immediate payments which had added up to Rs. 1776.00 million by end December-1991. Besides running finance loans amounting to Rs. 1088.00 million has also been repaid to the banks between September-1992 and May-1993 reducing loan balances from Rs. 2168.00 million as at end September-1992 to Rs. 1080.00 million as at end May, 1993. The combined effect has been that the immediate liabilities and running finance which stood at Rs. 3944.00 million in December 1991 now stand reduced to Rs. 1170.00 million i.e. a reduction of Rs. 2774.00 million. This has had a salutary effect on the liquidity position and has gone a long way in improving Pakistan Steel's image in the financial circles. Financial institutions which in the past tended to shun away Pakistan Steel's requests for credit are now more than willing to extend such facilities.

Prime Quality Products

One of the customer's major concerns is obviously with product quality. The quality of a product is related to its use or application and the assessment of its performance by the user. The present management of Pakistan Steel has given special attention to the quality aspects of its products and rate of rejection has decreased from over 6 per cent to about 3 per cent. An effective system of quality control has been organized and special teams continuously check the production processes at each and every stage. As the raw material moves forward by regulated steps it is examined and tested until it finally emerges as a product of international standard. The prime quality of Pakistan Steel products can also be ascertained from the fact that they are immediately sold and accepted by the domestic engineering industry.

Pakistan Steel and the Development of Engineering Industries

The methodology adopted in almost all the developing countries to bring about rapid socio-economic progress is through industrialization. Industrialization has been accepted as the central feature of long term economic growth. Thus industry including manufacturing sector is the leading sector in a development plan. The broad economic plans in almost all spheres have specified targets for the output of manufacturing industry as a whole as well as the volume of investment required to realize these targets.

The manufacturing sector in Pakistan encompasses consumer goods industries, industrial commodities producing sector (e.g. steel, cement fertilizer etc.) and engineering/capital good producing sector. Each of them has to play significant role to accelerate the rate of industrial growth.

The core of engineering goods manufacturing is iron and steel. Pakistan Steel is playing an important role in this direction. It is a project of seminal importance. Its main and by-products are utilized as inputs by engineering goods producing industries. The end-users who have been depending on imports of iron and steel items are now getting them locally and our national economy is deriving the benefit of import substitution.

The projects based on the utilization of products and by-products of an integrated steel mill as their major inputs are termed as "down-stream projects". Pakistan Steel has been making promotional efforts for the establishment of down-stream industries in the private sector. These efforts have met with success and as many as 23 down-stream units have already come up in different parts of the country and are in production. Another 12 projects are in pipeline, eight of which are in advanced stage of completion. The down-stream industries are producing value added engineering goods such as steel pipes (small, medium and large diameter), seamless pipes, wire rod and baling hoops, small sections, reinforcement bars, slag cement, slag wool, automotive parts etc. The down-stream industries have had significant impact on the national economy. They have contributed towards capital formation of over Rs. 2000.00 million, have provided direct/indirect employment opportunities to over 5000 persons and have effected import substitution of around Rs. 4 billion.

It would be absolutely incorrect to conceive that the total requirement of engineering goods could be covered by indigenous production. Behind the imported goods there lies contribution of technology, developed in advanced countries over TABULAR DATA OMITTED decades which can not be acquired without huge investment and creating necessary technological discipline in a developing country. In highly developed countries, greater significance generally rests on the motor industry and hence of sheets and coils. On the other hand in developing countries, the construction industry is usually of primary importance, but momentum towards motor vehicle and machinery including electrical plant and equipment industries also starts as soon as planned economic growth brings about its desired results.

The main markets for the principal iron and steel products are given in the following table showing that most of the engineering goods are based on steel products.

Three markets of outstanding importance for the steel products are:-

* Motor vehicle (sheet, coil and strip, special sheets).

* Construction (section, plates and tubes)

* Machinery, including electrical (sections, plates, sheets, tubes).

Demand of steel is growing at a fast rate in the country. Studies have shown that the present level of demand which stands at 2.9 million tons per year would grow to 3.7 million tons per annum by 1995-96 and further to about 5.0 million tons by the turn of the century. To cater to the rising steel demand, Pakistan Steel has envisaged to enhance its capacity from current maximum attainable level of production to 1.3 million tons/year by 1994-95 through balancing, modernization and replacement (BMR) of the existing facilities and further expand to 3.0 million tons per annum by end 1989. While work on BMR has already commenced, a scheme is being prepared for the expansion programme. In this respect various proposals as to the technology to be adopted for iron and steel making and ...... plans for project financing are under consideration.

Industrialization in Pakistan has made a gradual shift from setting up units for the manufacture of consumer goods, to setting up basic metal industries. The establishment of Pakistan Steel is leap forward in the industrial development of Pakistan. Availability of basic steel has laid a foundation for the development of a diversified engineering industry which will pave the way for Pakistan's entry into the sophisticated machine making area and will enable technological advancement comparable in quality, efficiency and productivity to the standards prevalent in the industrialized world, with the attendant benefits of better living for our people. Our goal should, thus, be building a strong Pakistan with steel by meeting our maximum engineering needs from indigenous sources. March in that direction has already been started with the creation of steel producing capacity, viz. PAKISTAN STEEL in the country.
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Article Details
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Author:Hussain, Sajid
Publication:Economic Review
Article Type:Industry Overview
Date:Jun 1, 1993
Words:2300
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