This situation has arisen in defiance, as if it were, of the law of supply and demand
Local steel companies are losing their sheen. With the liquidity crunch weighing heavily on the construction industry, local demand for steel has decreased by more than 50 percent, say steel makers.
Given this scenario, steel makers have cut down double shift production of 20 hours a day to single shift production of 10 hours a day.
“With the drop in steel demand, prices have also fallen to Nu 46,500 a metric tonne (MT),” a Pasakha-based industrialist said. “Toward the end of last year, it was about Nu 48,000 to 49,000 an MT.”
He said that it was the first time, since production started in 2008, that the industry had to reduce not only production but also price just to break even.
The demand for TMT (thermo mechanically treated) bars was on the rise with a construction boom in the capital and numerous 10th five-year plan development projects.
But with the 10th plan nearing its end, and the central bank imposing in March last year an indirect freeze on private housing loans as a measure to curb rupee outflow, domestic demand for TMT bars has taken a hit.
There are other reasons why production has slowed down in local steel industries. “The supply of raw material (sponge iron) has dropped even in India for past few months, because of their union budget 2013-14,” a steel industrialist explained. “The union budget indicates that steel price would soon increase.”
The 2013-14 union budget did not contain any reduction in duty of raw materials by Indian steel industry, including sponge iron producers.
With a 30-40 percent power tariff hike proposed, production of sponge iron production in India could half, if the hike is approved.
This means local steel makers will also have to pay more for their raw materials, and ultimately hike steel prices in the domestic market.
Of the seven steel industries in the country producing TMT bars, billets, ingots and structural steel, two industries, including Karma Steel, started production when the global financial crisis hit in October 2008. The other five have a major market in India, but raw materials to all steel industries, like sponge iron and billets, are imported from the Indian states like Orissa, West Bengal and Jharkhand.
From the five industries at Pasakha industrial estate, Druk Iron and Steel, and Bhutan Steel began production in 2004, and Lhaki Steel in 2006. KK Steel and Bhutan Concast started in 2008, producing intermediary products like billets.
Usually, when steel prices drop, contractors are smiling but, in the present situation, both steel makers and contractors have nothing to be upbeat about, a contractor said.
Although steel prices dropped, contractors with already huge overdraft loans with banks are not able to take advantage.
“Forget taking advantage of the low prices, instead I had to relieve some of my workers, because there isn’t much work to do nor cash (rupees) to buy raw materials,” a local contractor, Chewang, said.
By Passang Norbu