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Why Steel Industry is Not Healthy

by A N Md Mahfuzar Rahman
BANGLADESH. then East Pakistan, emerged In the world of steel as a steel making country on February 1, 1967, exactly 25 years back, when Chittagong Steel Mills Ltd (CSM). went on steam It was a prestigious project for East Pakistan, since this was the first significant steel Industry in the whole of Pakistan. The EPIDC Iron and steel works, now Chittagong Steel Mills Ltd (CSM). was built, designed, erected and commissioned by M/S Kobe Steel Ltd Japan. Total investment cost exceeds 60 crores Taka Including a foreign exchange component of Taka 25 crore. Work at the site started tn March' 63 and the project was completed by the end of December 1970. The plant is located on a 2OO-acrc site on the river Karnafull, Chittagong and the total covered area exceeds 22 acres. This Is a mini steel mill as the crude steel making capacity of CSM Is 250.000 metric tons per annum against today's mini mill capacity ranging upto one million ton while large Integrated steel plant has annual capacities of six millton tons or more.
The crude steel production of CSM was maximum of 135,700 ton against the rated capacity of 250.000 ton per annum. By crude Steel or raw
steel is meant ingots, billets, Mooms and slabs which have not been rolled.
The annual production of different units of CSM against rated capacities and maximum production attained arc given below:
The production level indicates poor performances compared to rated capacities but tn the context of maximum productton of different production units, as attained, these performances are not that bad. It is expected that production rate are likely to vary from 75 to 90 per cent in developing countries against rated capacf ties. Besides majority units of CSM attained monthly/ wcekly/dally production close to rated capacities and at times exceeding much above these rated capacities.
Technology
It is often preached that the
poor performances of CSM are due to adoption of obsolete technologies. The principal processes by which common steels are produced In an In duatrial scale are: Basic Oxygen Furnace, Electric Arc Furnace ind Open Hearth Furnace IOHF1. During mid sixties when CSM was set up, the >pcn hearth process of steel making comprised at least 50 Gcent of world steel output.
lay 57 per cent of world iteel output comes from Bask-Txygvn Furnace, 26.4 per cent rom Electric Arc Furnace and 16.6 per cent from OHF. OHF Steel making is on longer tn :xtstence tn Japan and EEC countries but in USSR and Eastern Europe around 50 per rent of Steel Is produced hrough OHF. Al least 34 per xnt steel is produced through 31 IF In India and 4.5 per cent n USA This OHF steel making ras been adopted in CSM.
The sheet mill In CSM has xen totally closed though 5700 tons of 26 O and 4400 ons of 24 G Cl Sheet were >roduced In 1967-68 from >lack sheets produced within he mill but since 1976-77 iracttcally all black sheets icedcd for Cl sheet produc-lon, are imported. The tm icrtcd black sheets are much heaper and better In quality han CSM sheet. Black sheet iroductlon requires heavy
muscular labour and this sheet mill is obsolete In the present lay context though similar type of sheet mills and com para lively less mechanised, are aperating profitably tn India.
CSM could not sell more than 12.200 tons of Cl sheet In a year till 1982 when a private Cl sheet plant was set up tn Chittagong. With the restructuring of Import policy the demand for Cl sheet went up suddenly and thus the production and sale of CI sheet rose dramatically leading to substantial profits for CSM. This profit was further accelerated with the use of abnormally low priced Bakhrabad Gas as fuel against furnace oil of Eastern Refinery priced abnormally high for CSM alone.
The average profit during those five years 84-89 exceeded Tk 6.5 crore annually but the loss alone tn 1990-91 exceeded the total profit made
during those five year.
The Cl sheet production boom of 45.200 tons In a year which I* above 90 per cent of rated capacity, attained 18 years alter the plant was commissioned. Is over with the setting up of at least two doxen Cl sheet production Cuts in the private sector.
fate of these Cl Sheets are often seen in newspaper photos or Bangladesh Television after every cyclone or tornado. Similarly, most of the MS Rods, and sections do not con form to any standard speclflca tion as available in the market but only a few rerolling mills produce MS rods and sections conforming to standard specifications of USA, UK. W Germany, Japan and International Standard Organisation (ISO).
MS roads, angles, fiat bars and shapes are produced from billets of CSM and other three dozen producers of billet be sides ship scrap is another source of raw material. Thus there is no monopoly for CSM except MS Plates whose de mand is just negligible.
Marketing
The marketing of CSM products continue to be the biggest problem since 1967. At times there was demand for □ne item or so for a while but most of the years the sale constraint persisted. The produc-
tion had to be curtailed very often. Thus this production curtailment tantamounts to go-slow practice* at the desire of the management resulting in lower productivity adoption and it Is difficult to attain higher productivity In times of demand. The sale volume continues to shrink and products had to be varied so as to meet the market.
During 80-82 the revenue Income comprised 70% from billet, 14% from MS plate and 13% from Cl sheet sale while during 84-86 the revenue comprised 35% from billet, 6% from MS plate and 58% from Cl sheet sale. But during 90-91. revenue comprised 53% from billet, 13% from plate and 33% from Cl sheet
The annual sale quantities of main three products during three distinct periods based on three years average sale are as follows:
The mill was designed to produce 55,000 ton MS Rods. 72,000 ton MS plates and 50,000 ton CI sheet annually.
The MS rod producing unit le bar mill, was converted Into billet producing mill during 1970-71 considering the tm mediate requirement of billet while there were a dozen rrrolling mills In operation
Raw material
The principal raw materials and others tor steel making and Cl sheet production, are pig Iron. Scrap, ferroalloys, refractories. lime stone dolomite, black sheet. Zinc, lead, chemicals and various other materials. In the absence of non availability of ail these materials locally, CSM has to Import — pig Iron from Egypt. Bulgaria. USSR. Australia. Pok Istan. China. Iran. Korea. Czechoslovakia.
A small number of refractories are locally produced and local scrap availability Is just negligible. Due to poor port handling facilities, lower draft for bulk carriers and human management problem at Chittagong port, the freight per ton Is abnormally high especially In case of scrap, pig iron and similar bulk cargo. It Is worthwhile to mention here that the current freight cost for a ton of Iron ore between Western Australia and Japan Is less than US dollar 7.00 whereas this freight from India and Pakistan ports are several times more than the above freight rate Japanese trans port industry in respect of bulk carriers has done miracle In transporting globally for her raw materials needed for her Industries. Japan Imported 125 million ton Iron ore. W Germany 44 million ton and S Korea 23 million ton In 1990 and this Is Inconceivable on our part while Chittagong and Mangla handle less than eight million ton import and export cargo tn year.
Very often consumers and politklans pose a question why the local steel shall be so costly compared to world market price while Japan Is Importing all the raw materials for her steel industry. Japan imports 99.5 per cent of Iron ore and 90 per cent coal/coke needed for steel industry. The answer ts not difficult lo find In the context of transportation cost and well educated disciplined work force of Japan
Profit and Loss
It is abnormal by any standard to observe that CSM maintained a bank overdraft of at least Tk 120 crores during 1990-91 and Tk 100 crores during 1989-90 against sale volume of Tk 1 17 crore and Tk 159 crore respectively.
The profit and loss figure indicates that CSM's loss was Tk 35 crore in 1990 91 against Tk 26 crore loss in 1989-90. Besides, there was tremendous loss to properties
the present level of productton and safe constraint* The manpower remain* practically •talk- a* follows but the pro ductton varied widely due to reason* explained earlier.
Considering the annual pay me nt made to worker* and employee*, it Indicate* that approximately 5000 pcopk-wirc engaged for a mint mill with such meagre production as mentioned. Japan produce* I 10 million ton with an work force of 307,000 EEC has a workforce of 303,000 for a production of 139 million Ion. USA ha* ■ workforce of 208.000 for a production of 89 million ton and India ha* a workforce of 290.000 for a production of 14 million ton.
The share of value addition under wages. salaries and benefits, has gone very high recently as it comprised 19.4 per cent of the total sale of Tk 117 crore in 1990-91 and
ind assets during the cyclone >f April 29 30. 1991. The pro-cry tow during the past years compared to eighties In this on text the current export >ricc* of MS rods, MS plates ind billets from EEC coun ties, Antwerp or Latin Amcr-ca are US dollar 290, 380 and 120 respectively. Thus the anded cost of MS rods, plates ind billets without duties and axes would be abnormally low -ompared to the current price >f MS rods at Tk 25.000 per on. MS plates at Tk 30,000 >er ton and billet at Tk 20,000 >er ton.
At time it is suggested that :SM products be exported in Hew of marketing constraints >ut ft Is evident that CSM iroducts are too expensive :ompared to would market >r1cc It may be mentioned lerc that major steel produc-ng countries are also major mporter* of steel a* follows:
In developing countries the lattefactory operation of Iron ind steel industry requires a radltton which docs not exist n Bangladesh and which is to >e created. There is absolute iced for responsible workers o permit operation to • tea onable degree. The universe if Iron and steel making is omplex and needs to be mas-ered. The processes Involve a 'arlety of technologic* like nctallurgy, chemical and ihyaical science*, mechanic* >f fluids and so on. The graft ng of an iron and steel Indus-ry may take poorly or not at ill and even It may be the •ause of a deterioration of the economy which it was intended to advance through Its own development.
The balancing,
modernisation and ■chabllttatton (BMR) of CSM lave been being discussed linec the last two decades and money and also being provided >y the government of Japan fhe BMR plan envisages :hang1ng the process of steel making from OHF to Electric ire Furnace (EAF) and nlroduction to new casting lystem known as continuous :asling (CC) instead of the txtsling Ingot casting. Conlin jous casting Is also a new cchnology like EAF steel making and to-day nearly 60 x:r cent of world steel is cast >y Ihls process. The percent-ige share of CC of steel is Japan 93.5 per cent, USSR 17.3 per cent, USA 64.6 per ent, EEC 87.9 per cent and E iurope 18.4 per cent.
Value Added Terms
Probably the productivity tn alue added terms does not ustify such move considering
14 3 per cent of Tk 158 crore sale in 1989-90. While thia fig urc was less than 10 per cent in curly eighties These figures are Hkcly lo ri*e tremendously with the Introduction of benefits of recent pay and service commission and the coming wage commission. The operation records Indicate that most of the production units remained Idle for more than 50 per cent of the scheduled operation hours due to breakdown. maintenance, oiferhaul-tng etc. The energy consumption per unit is atleast 50 per cent higher if not more than the prescribed quantity. More than 50 per cent of the crude steel produced are not intended to be produced. The percent yield le acceptable output, against input is abnormally low and at times steel produced finds Its way to scrapyard for recycling atone.
Ail these facts suggest poor though it i* normally expected that efficiency Is likely to improve with time.
Input and output
The existing system of pro curemen t through tender in small lots needs a change especially for pig Iron and scrap. Though 532 million ton pig Iron was produced in 1990. the trading volume was only 10.5 million ton and Japan atone imported 3 3 mil Hon ton. Similarly 350 million ton steel scrap wa* consumed in 1990 but the trading volume waa 31 million ton. Brazil and USSR «re the biggest supplier of pig Iron while USA. Germany. France and UK are the supplier of scrap In the world martlet. In thia context long term arrangement could be Ideal consid eri ng our meagre requirement. Beside* the plundering of Pig Iron. Scrap
and other* during transit from port to mill site. I* another big concern for mill management
Thus It is quite natural that the cost of productton will be higher and then poor con sumers are likely to bear the cost of inefficiency tn a protected market.
A true steel industry ts yet lo be established Inspite of the fact that a population of I 10 million live here. Iron and steel comprise about 95 per cent of all tonnage of metal* produced annually In the world. State Initiative tn promoting the steel industry continuous to be predominant In developing countries regardless of their system and their economic and social preference*. In developing countries 80 percent of the project* depend on government initiative* or ownerships direct or Indi-
red
In to true that a steel industry la a must for developing tn all the sector* of economy and tt should generate wealth but an unmanageable Industry often
Employee* deserve praise that the natives alone have kept the CSM running for the
development, which 1* the software for success of industrialisation, has been totally neglected during all these years comparing steel mill operation with operations of jute mill*, textile mills *nd sugar mill* Here in the country the planners and enter prises operate In isolation with no mechanism to facilitate the flow of Information between the two. The statistical year book indicates that the coun
try'* production of MS rod* during 85-89 was only 12.500 ton, 34.300 ton. 32.400 ton and 25,200 ton respectively.
On the other hand eight rerolling mill* of steel and engineering corporation produced on an average 61.000 ton MS rod* during 79-82 and gave at least Tk 3 crore as duties. taxes etc to the government annually.
Against *uch a backdrop, tt Is necessary lo make a through study of the steel sector and assess the actual capabilities of both the public and private sector against the need of the country alone. It is essential to have deliberations among private industrialists, bankers, labour unions, relevant institution* local and foreign, government official* and knowledgeable persons for proper appraisal and decision making.