Pakistan Steel Sector's Strong Growth Potential Remains Stunted

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Written by Richard Finlayson, Senior International Editor for Industrial Info Resources (Sugar Land, Texas)--Nothing appears to be certain in Pakistan's outlook for 2012. The World Bank's report "Global Economic Prospect 2012" forecasts that the country's GDP growth would be 3.9% in 2012, following a rate of 2.4% in 2011. This growth rate forecast will be qualified by the fraught security situation along with political uncertainty and a breakdown in policy implementation.

Infrastructure bottlenecks, including disruptions in power delivery, remain widespread, according to the report. However, a notable bright spot has been increased exports, which grew 39% in the first half of 2011, led by textiles. Industrial production surged to grow at a robust 32.1% annualized rate during the three months ending October 2011, after falling 9.1% and 10.1%, respectively, in the first and second quarters. The effects of flooding in 2010 were still being felt.

Projects are announced in industrial sectors and then wax and wane, as the power supply stumbles and at the same time plans for growth in demand.

The manufacturing and construction industries have seen growth over the last five years driven by relatively strong economic growth from a low base. But Pakistan remains one the world's lowest per capita consumers of steel, at 37 kilograms per capita annually. The regional average is 207.8 kilograms, and the global average is 181.5 kilograms. If investors are able to look past the current situation, the low consumption base presents high growth prospects for the steel sector.

The larger end of industry has an annual capacity of 1.3 million tons of steel. But capacity utilization is limited to only 17.4% of the total, as about 60% of total available capacity is still to commence commercial operation.

Pakistan Steel Mills, with a current capacity of 1.1 million tons, is running at 43% capacity. The smaller end of the sector is fragmented with 100 units nationwide with a total installed annual capacity of about 2.7 million tons.

The State Bank of Pakistan reports that Pakistan has been reliant on steel imports to meet growing domestic demand. Steel and iron products worth $830 million were imported during the second half of 2010. The import figure for the end of the 2011 fiscal year was about $1.7 billion.

With a population of slightly less than 190 million people, low per capita steel consumption and the desire to replace imports, Pakistan must experience major growth in the domestic steel sector as soon as possible. "Possible" being at the mercy of the security and political situation.

Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, and eight offices outside of North America, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle™, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities.