Local steel millers' vast capacity to produce rods has remained largely untapped due to a drop in demand with nearly non-existent development and infrastructure works in the public sector.

Industry leaders said many factories have cut their production by up to half due to a rise in the prices of raw materials, gas, electricity and oil and a bleak prospect in the country's infrastructure projects.

Bangladesh has more than 400 steel, rerolling and auto-re-rolling mills with a combined annual production capacity of 80 lakh tonnes. But it consumes only 40 lakh tonnes of rod a year, making the country one of the lowest consumers of steel products in the world.

Not only are major construction projects stuck due to various implications, the construction of small bridges, culverts and buildings by the government across the country has slowed compared to activities a few years ago, said SK Masadul Alam Masud, chairman of Bangladesh Auto ReRolling and Steel Mills Association.

Masud spoke at a meeting with The Daily Star earlier this week as part of the newspaper's weekly business talks at its office. Top leaders of Bangladesh Steel Mill Owners Association, Bangladesh Re-Rolling Mills Association and Bangladesh Auto Re-Rolling and Steel Mills Association took part in the discussion.

Manufacturers said Bangladesh has not needed to import steel products and rods since independence.

"Once we used to import raw materials such as billet. Now we produce a majority of the billet. We have also installed state-up-the-art technology to make our production efficient," said Masud.

Fazlur Rahman Bakul, chairman of Bangladesh Steel Mills Owners Association (BSMOA), said local investors invested heavily in the sector in the last decade in hopes that the steel industry would grow at 10 percent in the coming days, riding on government programmes centring its vision for 2021, a real estate boom in urban areas and an inflow of remittance in rural areas.

"But the industry is not growing at that pace.”

He said the government accounts for nearly 40 percent of total steel consumption in the country, which has gone down significantly. The private sector appetite has also slowed down.

In addition, a low pressure of gas, depreciation of the taka, rising costs of raw materials and bank borrowing, and a tight liquidity situation have hurt the Tk 30,000 crore industry in recent months, manufacturers said.

They said by meeting total local requirements, manufacturers are saving billions of dollars in foreign exchange. The sector has created direct jobs for about 10 lakh people.

"But nobody looks after us," Masud said.

Masud said the cost of producing a tonne of 60-grade rod has increased byTk 18,000 between January 2011 and January 2012, mainly because of a depreciation of the taka against the US dollar. Steelmakers import at least 70 percent of their raw materials.

The latest move to withdraw the upper cap on bank lending rates has also pushed production costs up.

Though the leaders could not say much on future steel (rod) prices, they hinted that prices would continue to rise in local markets till the taka stops to depreciate. Currently, the price of a tonne of 60-grade rod has risen byTk 10,000 to Tk 72,000 a tonne.

"The price hike will continue for as long as the dollar continues to appreciate,” said Md Shahjahan, secretary general of Steel Mills Owners Association.

Abu Bakar Siddique, general secretary of Bangladesh Re-Rolling Mills Association, said, “We are not getting an adequate supply of gas and are being forced to use costly coal and furnace oil to run our factories."

The industry leaders also urged the government to withdraw the pre-shipment inspection arrangement. Instead of getting services, they face harassment, they added.

"We do not need any pre-shipment inspection. Before the announcement of the budget last year, we urged the government to withdraw pre-shipment inspection for us. But the government did not listen, although such a system has been withdrawn for many sectors," said Md Syfur Rahman Khokon, chairman of Rahima Ispat Ltd.

Pre-shipment inspection firms charge Tk 500 to certify a tonne of raw materials.

Masud said the fall in consumption could make many factories sick in the coming days, as they are not getting working capital from banks at low interest rates.

If the prices of all raw materials and production cost go up, millers cannot increase the retail price outright, he added. "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."

He said the high bank interest rate has already dealt a serious blow to the industries, as they are not getting funds to buy raw materials. The new contractionary monetary policy will also dry up funds for them, he added.

He said the existing small-scale development and infrastructure projects across the country would also face trouble due to a rise in rod prices. "If the government rates for the rods are not adjusted, the contractors will delay completion of the projects."

The general secretary of Bangladesh Rerolling Mills Association said local manufacturers are meeting the demand of the country's total rods and steel products consumption.

Siddique said Bangladesh has the capacity and potential to export rod to India, especially its northeastern seven sisters region. "But we cannot explore our export potential due to various non-tariff barriers imposed by the importing countries.”

He said although this is a basic industry, the government and NGOs are hostile to the sector.

Siddique said the Bangladesh Energy Regulatory Commission cannot increase electricity prices more than once a year. "But prices have been raised thrice recently.”

"We are not getting an adequate supply of gas. When we get gas, the pressure is low. We are being forced to use costly coal and furnace oil to run the factory."

Siddique said rod consumption has gone up in rural areas due to a rise in people's income levels and a steady inflow of remittance.

Masud said Bangladesh has an export potential for rod. “But we have to be given incentives so that we can exploit overseas markets."

Siddique said Bangladesh has the capacity to export rod to the northeastern Indian states, but cannot do so due to non-tariff barriers.

Md Harun-or-Rashid, information director of BSMOA, said the government should lobby with the Indian government so that they accept the standardisation of Bangladesh Standards and Testing Institution.

Masud said they are not against the price hike of gas and electricity. "The government should reduce a 30 percent system loss. There are malpractices in the billing process, which need to be addressed first."

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.

So far, two trucks carrying rods from his company were snatched by criminals last year. But police retrieved only one truck.

Bakul said the government should set up a separate ministry for the steel sector to help the sector grow.

fazlur.rahman@ttiedailystar.net