PROJECT REPORT
“Analysis of Pakistan steel mill” Subject: Analysis of Pakistani Industries Class ID: 10127
Prepared By
1. Suraj Oad (4344) 2. Zeeshan Khan (4503) 3. M.Talha Atta-us-samad (4502) 4. Sumair hussain (4439)
Submitted To: Sir Riaz Ahmed A Brief Analysis of the Pakistan Steel Mill
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Table of Contents Table of Contents ...... 3 Introduction: ...... 5 Steel ...... 5 Significance of Steel Industry in Economic Growth ...... 5 Steel Recycling ...... 5 Production Process ...... 7 Basic Steelmaking Process: ...... 7 Electric high-frequency furnace and crucible processes ...... 8 Electric arc Furnace ...... 8 Bessemer method ...... 8 Open Hearth method ...... 8 Basic oxygen method ...... 8 Raw materials ...... 9 There are several basic elements which can be found in all commercial steels: ...... 10 Types of Steel Mills: ...... 11 INTEGRATED MILL: ...... 11 MINI MILL: ...... 11 The Consumption of Steel ...... 12 in everyday commodities and its uses ...... 12 Uses ...... 12 Types of Steel and pertinent uses: ...... 12 Long steel ...... 12 Flat carbon steel ...... 12 Stainless steel ...... 13 Industry Overview and ...... 13 Global Perspective ...... 13 Historical Analysis of Steel Industries in Pakistan ...... 14 Historical Analysis of the Steel Mill Projects in Pakistan ...... 15 The Kalabagh steel mill project: ...... 15 The Nokkundi iron ore project: ...... 16 The Pakistan Steel Mill (PSM): ...... 16 Importance of Pakistan Steel Mill ...... 17 Privatization of Pakistan Steel Mills: ...... 17 Suo moto notice ...... 17 Pakistan Steel: bail-out package approved by Gilani ...... 18 Steel Mills in Private Sector ...... 18 Al – Tuwairqi Steel Mills: ...... 19 1st Phase: ...... 19 2nd Phase: ...... 20 Consortium plans steel mill at Kalabagh: ...... 20 Pakistan Steel Production, Consumption & Growth Potential ...... 21 Comparative Imports of Metal Group during July-March, 2008-09 and 2009- 10 ...... 22
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Government’s Role: Tariffs and taxes ...... 23 Auxiliary Industries ...... 24 SWOT analysis Pakistan Steel Industries ...... 24 Strengths: ...... 24 Weaknesses: ...... 25 OPPURTUNITIES: ...... 25 Threats: ...... 26 Recommendations: ...... 26 Future Prospects ...... 28 Extracting domestic Iron-Ore Reserves ...... 28 Al-Tuwairqi Steel Mills ...... 28 PAKISTAN STEEL MILL ...... 29 INTRODUCTION: ...... 29 HISTORY: ...... 31 Our vision: ...... 33 Our Mission : ...... 33 OBJECTIVES: ...... 33 LOCATION AND SITE: ...... 34 EMPLOYMENT OPPORTUNITY: ...... 35 SWOT ANALYSIS OF PAKISTAN STEEL MILLS ...... 36 STRENGTH: ...... 36 WEAKNESS ...... 38 OPPORTUNITIES ...... 39 THREATS ...... 41 Pakistan Steel Mills Factor Conditions and Issues ...... 43 Infrastructure: ...... 43 Raw Material: ...... 43 Labor: ...... 44 Utilities: ...... 45 Environmental Issue ...... 46 some important question and answers about pakistan steel mill ...... 55 Bibliography ...... 64
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INTRODUCTION:
A WORD ABOUT “STEEL” AND IT’S SIGNIFICANCE IN ECONOMIC GROWTH
Steel
Steel is an alloy of iron and carbon (containing carbon content between 0.2% and 2.1% depending on the grade). Apart from carbon, various other alloying elements are used, such as manganese, chromium, vanadium, and tungsten.
Carbon and other elements act as a hardening agent, preventing dislocations in the iron atom crystal lattice from sliding past one another. Varying the amount of alloying elements and form of their presence in the steel (solute elements, precipitated phase) controls qualities such as the hardness, ductility, and tensile strength of the resulting steel.
Significance of Steel Industry in Economic Growth
The steel industry is often considered to be an indicator of economic progress, because of the critical role played by steel in infrastructural and overall economic development. The volume of steel consumed has been the barometer for measuring development and economic progress. Whether it is construction or industrial goods, steel is the basic raw material. However with the advancement in technology, lighter metals and stronger alloys have been developed. Plastics and synthetics have replaced steel in many areas.
Still, “Steel” today is one of the most common materials in the world, with more than 1300 million tons produced annually. It is a major component in buildings, infrastructure, tools, ships, automobiles, machines, appliances, and weapons.
Steel Recycling
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Steel is 100% recyclable, and because it maintains its properties through successive product cycles without a loss of quality, it can be recycled an unlimited number of times. It is easy to handle and separate from other materials in the recycling stream because of its natural magnetic properties. For example, a recent world survey of “steel can” recycling found an average recycling rate of 63%, with some countries reporting rates in excess of 85%. It is generally estimated that the recycling rate of automotive steel is also very high, with the USA consistently reporting grates over 90% for the last 10 years. Steel that is in use today will be recovered, processed, and used again by future generations. Indeed steel is the most recycled material in the world. IISI statistics show that 451.7 mmt were collected and returned in 2004. This means that 42.7% of total world crude steel produced in 2004 was made from recycled steel.
Despite of the fact that Steel is 100% recyclable, the actual percentage appears low because a large proportion of steel products (such as buildings, bridges, and cars) have long life cycles. There is not enough recycled steel to meet society’s increasing demand for steel. Demand for steel is 50% greater today than 10years ago, so current steel production requires still iron ore.
Thus Demand for Steel is met through the combined use of recycled steel as well as iron ore. Both primary and secondary raw materials are necessary to further the industry’s economic, environmental, and social sustainability performance.
Recycled steel is a very valuable secondary raw material. A dedicated infrastructure exists worldwide to ensure the most efficient use of this quality commodity, which is internationally traded and used today. It is cheaper to recycle steel than to mine iron ore and manipulate it through the production process to form new steel. Steel does not lose any of its inherent physical properties during the recycling process, and has drastically reduced energy and material requirements compared with refinement from iron ore. There is often very little waste produced during construction, and any waste that is produced may be recycled.
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PRODUCTION PROCESS
Basic Steelmaking Process:
It is produced in a two-stage process:
1. First , iron ore is reduced or smelted with coke and limestone in a blast furnace, producing molten iron which is either cast into pig iron or carried to the next stage as molten iron.
2. In the second stage, known as steelmaking, impurities such as sulfur, phosphorus, and excess carbon are removed and alloying elements such as manganese, nickel, chromium and vanadium are added to produce the exact steel required.
Steel mills turn molten steel into blooms, ingots, slabs and sheet through casting, hot rolling and cold rolling.
With the invention of the Bessemer process in the mid-19th century, steel became an inexpensive mass-produced material. Further refinements in the process, such as basic oxygen steelmaking, further lowered the cost of production while increasing the quality of the metal.
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Various Steel melting processes:
Electric high-frequency furnace and crucible processes Electric arc Furnace Bessemer method Open Hearth method Basic oxygen method
Many modernized Steel Mills now utilize an Integrated Route for Steel Making:
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Raw materials
The ores used in making iron and steel are iron oxides, which are compounds of iron and oxygen. The major iron oxide ores are
1. Hematite, which is the most plentiful, 2. Limonite, also called brown ore, 3. Taconite, and 4. Magnetite, a black ore.
Iron making furnaces require at least a 50% iron content ore for efficient operation, also, the cost of shipping iron ores from the mine to the smelter can be greatly reduced if the unwanted rock and other impurities can be removed prior to shipment. This requires that the ores undergo several processes called "beneficiation." These processes include crushing, screening, tumbling, floatation, and magnetic separation. The refined ore is enriched to over 60% iron by these processes and is often formed into pellets before shipping.
The three raw materials used in making pig iron (which is the raw material needed to make steel) are the processed iron ore, coke (residue left after heating coal in the absence of air, generally containing up to 90% carbon) and limestone (CaCO3) or burnt lime (CaO), which are added to the blast furnace at intervals, making the process continuous. The limestone or burnt lime is used as a fluxing material that forms a slag on top of the liquid metal. This has an oxidizing effect on the liquid metal underneath which helps to remove impurities. Approximately two tons of ore, one ton of coke, and a half ton of limestone are required to produce one ton of iron.
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There are several basic elements which can be found in all commercial steels:
Carbon is a very important element in steel since it allows the steel to be hardened by heat treatment. Only a small amount of carbon is needed to produce steel: up to 0.25% for low carbon steel, 0.25-0.50% for medium carbon steel, and 0.50-1.25% for high carbon steel. Steel can contain up to 2% carbon, but over that amount it is considered to be cast iron, in which the excess carbon forms graphite.
The metal manganese is used in small amounts (0.03-1.0%) to remove unwanted oxygen and to control sulfur. Sulfur is difficult to remove from steel and the form it takes in steel (iron sulfide, FeS) allows the steel to become brittle, or hot-short, when forged or rolled at elevated temperatures. Sulfur content in commercial steels is usually kept below 0.05%.
A small quantity of phosphorus (usually below 0.04%) is present, which tends to dissolve in the iron, slightly increasing the strength and hardness. Phosphorus in larger quantities reduces the ductility or formability of steel and can cause the material to crack when cold worked in a rolling mill, making it cold-short.
Silicon is another element present in steel, usually between 0.5-0.3percent. The silicon dissolves in the iron and increases the strength and toughness of the steel without greatly reducing ductility. The silicon also deoxidizes the
molten steel through the formation of silicon dioxide (SiO2), which makes for stronger, less porous castings.
Another element that plays an important part in the processing of steel is oxygen. Some large steel mills have installed their own oxygen plants, which are located near basic oxygen furnaces. Oxygen injected into the mix or furnace "charge" improves and speeds up steel production.
Steel can be given many different and useful properties by alloying the iron with other metals such as chromium, molybdenum, nickel, aluminum, cobalt, tungsten, vanadium, and titanium, and with nonmetals such as boron and silicon.
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Types of Steel Mills:
INTEGRATED MILL: Integrated mills are large facilities that are typically only economical to build in 2,000,000 ton per year annual capacity and up. Final products made by an integrated plant are usually large structural sections, heavy plate, strip, wire rod, railway rails, and occasionally long products such as bars and pipe.
An integrated steel mill has all the functions for primary steel production:
• Iron Making (conversion of ore to liquid iron), • Steelmaking (conversion of pig iron to liquid steel), • Casting (solidification of the liquid steel), • Roughing Rolling/Billet Rolling (reducing size of blocks) • Product Rolling (finished shapes).
Because of the energy cost and structural stress associated with heating and cooling a blast furnace, typically these primary steelmaking vessels will operate on a continuous production campaign of several years duration. Even during periods of low steel demand, it may not be feasible to let the blast furnace grow cold. Due to the large employment of integrated plants, often governments will financially assist an obsolescent facility rather than take the risk of having thousands of workers thrown out of jobs.
MINI MILL: A mini-mill is traditionally a secondary steel producer. Usually it obtains most of its iron from scrap steel, recycled from used automobiles and equipment or byproducts of manufacturing. A typical mini-mill will have an electric arc furnace for scrap melting, a ladle furnace or vacuum furnace for precision control of chemistry, a strip or billet continuous caster for converting molten steel to solid form, a reheat furnace and a rolling mill. Often a mini-mill will be constructed in an area with no other steel production, to take advantage of local resources and lower-cost labor. Mini-mill plants may specialize, for example, making coils of rod for wire-drawing use, or pipe, or in special sections for transportation and agriculture. Capacities of mini-mills vary; some plants may make as much as 3,000,000 tons per year, a typical size is in the range 200,000 to 400,000 tons per year, and some old or specialty plants may make as little as 50,000 tons per year of finished product. Since the electric arc furnace can be easily started and stopped on a regular basis, mini-mills can follow the market demand for their products easily, operating on 24 hour schedules when demand is high and cutting back production when sales are lower.
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THE CONSUMPTION OF STEEL IN EVERYDAY COMMODITIES AND ITS USES
Uses
Iron and steel are used widely in the construction of roads, railways, other infrastructure, applicances, and buildings.
1. Most large modern structures, such as stadiums and skyscrapers, bridges, and airports, are supported by a steel skeleton. Even those with a concrete structure will employ steel for reinforcing.
2. In addition to widespread use in major appliances and cars. Despite growth in usage of aluminium, it is still the main material for car bodies.
3. Steel is used in a variety of other construction materials, such as bolts, nails, and screws.
4. Other common applications include shipbuilding, pipeline transport, mining, offshore construction, aerospace, white goods (e.g. washing machines), heavy equipment such as bulldozers, office furniture, steel wool, tools, and armour in the form of personal vests or vehicle armour.
Types of Steel and pertinent uses: Long steel . As reinforcing bars and mesh in reinforced concrete . Railroad tracks . Structural steel in modern buildings and bridges . Wires Flat carbon steel
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. Major appliances . Magnetic cores . The inside and outside body of automobiles, trains, and ships. Stainless steel
. Cutlery . Rulers . Surgical equipment . Wrist watches
INDUSTRY OVERVIEW AND GLOBAL PERSPECTIVE
Steel production: 1999 Steel production: 2009 Geographical distribution Geographical distribution
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Steel Use: 1999 Steel Use: 2009 Geographical distribution Geographical distribution
HISTORICAL ANALYSIS OF STEEL INDUSTRIES IN PAKISTAN
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Historical Analysis of the Steel Mill Projects in Pakistan
Most Pakistanis do not realize that a Steel Mill is actually more essential than a nuclear plant, or a missile. A steel mill is the backbone of the infrastructure of any country. Whether it is roads, bridges, or sugar mills, everything comes from a steel mill.
After independence in 1947, it did not take long for Pakistan to come to the realization that progressive industrial and economical development would be impossible without the possession of a self reliant iron and steel making plant. The dependence on imports would cause serious setbacks to the country along with an extortionately high import bill which would be impossible to support.
Unfortunately Pakistan could not get a steel mill from 1947-1973. Most powers would not sell the technology that could undermine the industrial prowess as well as the export capability of Western enterprise.
The initial idea for a domestic iron and steel mill was put forward in the first five year plan of Pakistan (1955 - 1960). Debates over the manufacturing process, supply sources of the requisite machinery and raw materials, plant site, domestic ore versus imported ore, ownership pattern, product mix and above all foreign financing credit kept the project on hold for a considerable time.
The Kalabagh steel mill project:
In 1956, M/S Krupp of Germany offered to set up a steel mill based on Kalabagh iron ore. Most of the other required minerals, including coal, were available in a radius of only 11 miles from the proposed site. Unfortunately, the concerned minister from a steel-importing family managed to sabotage this project.
Mr. Ghulam Farooq, the then chairman of the Pakistan Industrial Development Corporation, resigned in protest. Interestingly, this Kalabagh iron ore was of such high quality that in June 1966, M/S Salzgitter of Germany procured 15,000 tonnes of the ore, and produced 5,000 tonnes of quality steel which was bought by the world- famous automobile company, Volkswagon.
Consequently, M/S Salzgitter offered to set up Kalabagh steel mill based on Kalabagh iron ore, and imported coal. This project was estimated to cost only Rs1.5 billion. It adds to the credibility of the project that certain European banks offered to finance the project. Once again, the offer was rejected.
In April 1968, President Ayub Khan accepted the Russian offer for Kalabagh steel mill project, and his successor President Yahya Khan inked the project agreement with Russia. However, it was later learnt that Russia did not possess the technology to produce steel from the Kalabagh iron ore.
Common-sense would indicate that German offers for the Kalabagh iron ore should have been revived. Instead, the site of the steel mill was shifted to Karachi. Not only
15 A Brief Analysis of the Pakistan Steel Mill was its machinery comparatively inferior, but it was based on ore and coal that had to be imported.
The Nokkundi iron ore project:
In 1972, experts from China discovered a substantial quantity of high quality iron ore in Nokkundi, Balochistan. Steel experts from America and Japan confirmed its suitability for steel production. They, therefore, recommended that a mini steel mill be set up in Balochistan. Even till 1999, offers from China and Iran were submitted to our government for this steel mill in Balochistan. Like the Kalabagh iron ore project, this too was never to see the light of day.
The Pakistan Steel Mill (PSM):
After the engineered demise of the Kalabagh steel mill and the Nokkundi iron ore projects, Pakistan Steel concluded an agreement with V/O Tiajproexport of the then USSR In January, 1969 for the preparation of a feasibility report into the establishment of a steel mill at Karachi. Subsequently in January, 1971 Pakistan and the USSR signed an agreement under which the latter agreed to provide techno- financial assistance for the construction of a coastal based integrated steel mill at Karachi.
The foundation stone for this gigantic project was laid on the 30th of December, 1973 with an estimated cost of Rs14 Billion. It was completed in 1985, but only after the costs had soared by an additional Rs10 billion.
Pakistan Steel is Pakistan's largest industrial complex. It’s unloading and conveyor system at Port Qasim is the third largest in the world and its industrial water reservoir with a capacity of 110 million gallons per day is the largest in Asia. A 2.5 km long sea water channel connects the sea water circulation system to the plant site with a consumption of 216 million gallons of sea water per day. PSM’s comprises of “Component Units” numbering over twenty and each is a big enough factory in its own right.
Pakistan Steel is strategically located 40km south east of Karachi in close vicinity to port Muhammed Bin Qasim. Pakistan Steel is a costal site which lies on the National Highway and is linked to the railway network. Spread overran area of 18,600 acres (29 square miles) with 10,390 acres for the main plant, 8070 acres for the township and 200 acres for the water reservoir. Pakistan Steel specialize in the production of flat steel products including, billets, slabs, hot rolled coils, cold rolled coils, galvanized sheets/coils/formed sections and corrugated sheets.
Moreover, while the installed capacity has been 1.1 million tonnes per year, the average utilization hovers around only 80 per cent of this target.
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Importance of Pakistan Steel Mill Despite of all the scandals, corruption-cases and inefficiencies, PSM holds a strategic position in the economy of Pakistan. A steel mill is not a normal run of the mill factory. It has long term implications on the defense industry. In the case of defense projects like the JF-17 Thunder or the Al Khalid Tanks or the Shaheen missile, steel produced in Pakistan through PSM proved to be quite essential.
The Pakistan steel mill was seminal in creating the gas centrifuges, the sugar mills, the Shaheen and Hataf missiles, the Al-Zarar and Al-Khalid tanks and the buildings of Pakistan.
Privatization of Pakistan Steel Mills: In May 2006, the government of General Musharraf privatized Pakistan Steel Mills. The consortium involving Saudi Arabia-based Al Tuwairqi Group of Companies submitted a winning bid of $362 million for a 75 per cent stake in Pakistan Steel Mills Corporation (PSMC) at an open auction held in Islamabad. the consortium of Saudi Arabia-based Al Tuwairqi Group of Companies, Russia's Magnitogorsk Iron & Steel Works and local firm Arif Habib Securities paid a total Rs21.6 billion ($362 million), or Rs16.8 per share, to take control of Pakistan's largest steel manufacturing plant.
Suo moto notice
In response to wide spread public outcry and call for action the Chief Justice of Pakistan took a suo moto action against the privatization citing irregularities in the process.
The Supreme Court on August 8, 2006 held that the entire disinvestment process of the Pakistan Steel Mills reflected haste, ignoring profitability aspect and assets of the mills by the financial adviser before its evaluation and by the Privatization Commission (PC) and the Cabinet Committee on Privatization (CCOP)
On June 23, a nine-member bench of the Supreme Court had annulled the sale of the country’s largest industrial unit to a three-party consortium and had directed the government to refer the matter to the Council of Common Interests within six weeks. It had declared the $362 million transaction with the Russian-Saudi-Pakistan investors as null and void.
The verdict said that keeping in view the annual net profit of the mill, its shares’ value should have been ascertained by offering 10 per cent equity of the mills on the stock exchange.
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“A constitutional court would be failing in its duty if it does not interfere to rectify the wrong, more so when valuable assets of the nation are at stake,” the judgment said.
Pakistan Steel: bail-out package approved by Gilani
The Ministry of Industries had sought Rs 25 billion for long term while an amount of Rs 10.640 billion immediately to salvage the mill. Allowing PSM closure would create a devastating affect on the already suffering economy of Pakistan and render 17,000 employees jobless thus creating an enormous social issue.
During the last three years PSM was totally dependent on imported raw material since there was disruption in supply of local raw material because of poor law and order situation. The local raw material otherwise also partially supplemented the requirements of the mill. The global recession and fluctuation of prices at international level are beyond the control of Pakistan Steel Mills, which were mainly responsible for the losses.
In April 2008, PSM signed contracts for raw materials at much higher rates, resulting in costlier finished products. With other steel producing countries lowering product prices, Pakistan Steel Mills witnessed a drastic slump in sales and recorded a loss of $156 million for the period July 2008-March 2009.
Steel Mills in Private Sector
About 15 Arc furnaces of capacity 5 mt were installed in the private sector in early 70's and they have started their production to support Pakistan Steel Mills in producing steel in the country.
Currently there are more than 140 steel melting induction furnaces installed in different areas of Pakistan which are producing good quality steel to meet Pakistan's steel requirements.
As Arc furnaces are expensive and take longer production time than Induction furnaces, so most of the private sector is shifted to Induction furnaces. Private factories are now producing steel with latest technology induction furnaces and they are trying their best to compete the international market.
Pakistan Steel mills is producing about 1 million ton per year steel where private sector is producing 30 million ( including billet, rebars, channel and angle etc) The other requirements are fulfilled with ship breaking and other steel products.
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Al – Tuwairqi Steel Mills:
Keeping in mind the recent the recent development, Saudi Arabia has also invested in the Pakistan Steel industry through renowned company "Al-Tuwairqi Steel Mills". TSML is the country's first private- sector integrated environment-friendly steel manufacturing project of Al Tuwairqi Holding, Kingdom of Saudi Arabia. Its complex spreads over an area of 220 acres at Bin Qasim, Karachi, and employs the world's most advanced DRI (Direct Reduction of Iron) Mr Zaigham Adil Rizvi technology based on the MIDREX process. After completion Al-Tuwairqi would be Director Projects Tuwairqi Steel Mills Limited
If everything goes according to plans, Tuwairqi Steel Mills Limited (TSML) aims to start production by the beginning of the fourth quarter, 2010. The construction of the plant took about three years and there was a nine-month delay due to finalizing procedures, but now construction is 95 percent complete
1st Phase:
In its first phase, TSML's Karachi-based plant is targeted to have a production capacity of 1.28 million tonnes per year of direct reduced iron (DRI), which is used to make steel. Eventually achieving full capacity within a year's time and grow to Pakistan's largest steel producer. The first phase of TSML cost $275 million and was fully financed by Tuwairqi Holding, including 65 percent through debt.
We should ask ourselves, what is DRI?
DRI is one of the most preferred raw materials for quality steel making, globally. There is a consistent growth in the production of DRI over the years, owing to environment-friendly production processes and consistent quality of the product. Foundries and melt shops in Pakistan have not yet fully realized the benefit of using DRI. Actually, DRI contains around 94 percent iron with very little impurities, which are removable. As compared with the conventional steel making processes, using DRI gives a very good control over composition of various types of steels, and seemingly DRI is steel's most versatile form. We have recently signed agreements with some Indian and Malaysian companies for selling our DRI to them.
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2nd Phase:
In the second phase of the project, forward integration, the management plans to set up an electric arc furnace, for the production of 1.28 MTPY billets, an investment of USD 380 million and German technology. The firm is also looking at opportunities for iron ore exploration in Pakistan's Baluchistan and Punjab provinces However to meet its requirements in the coming period, it will be procuring buying the ore from Bahrain.
TSML will be playing a pivotal role in bridging the demand-supply gap. It is important to note that Pakistan's annual demand for steel is around 8.4 million tonnes, while production is 4.9 million tonnes per year. Additionally TSML possess plans to export 50 percent of our production to India and the Middle East.
Pakistan’s economy and industry in general is being hindered by power shortages, which are proving to be life-threatening for the very existence of the economy. The nation has production capacity of about 16,500 MW but faces a shortfall of between 4,000-5,000 MW. Tuwairqi Steel Mills plans to overcome this problem by building on-factory gas turbines, which can generate 38 MW, thus alleviating the power shortage problem for TSML.
Moreover TSML will not only be a source of transfer of the latest technology of quality steel making, it will also be helpful in giving impetus to the industrial progress in Pakistan. It will open up new avenues of investment in similar plants besides giving a boost to the downstream industries of the country.
In the context of human resource development, TSML will create around 1,000 direct and about 3,500 indirect job opportunities. Pakistan is among those countries that rely mostly on imports, when it comes to heavy mechanical structures and engineering goods. By producing high-quality steel within Pakistan, we can manufacture such equipment locally by value addition, with the help of downstream industries.
Consortium plans steel mill at Kalabagh:
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A consortium of four steel mills will establish an integrated steel mill at Kalabagh, The planned steel mill would have annual capacity of producing one million tonnes of steel using indigenous iron ore excavated from Kalabagh and Chiniot. The consortium comprising four companies include Mughal Steel, Star Cotton Corporation, Pak Steel and Ittehad Steel Mills. They have already incorporated a company under the name of ‘Indus Consortium Mining & Steel Industry (Pvt) Ltd’ with Securities and Exchange Commission of Pakistan (SECP), sources in the ministry of Industry & Production (MOIP) told this correspondent.
Pakistan Steel Production, Consumption & Growth Potential
Pakistan has also been experiencing growing demand for steel, but its demand for steel is overshadowed by China, India and Japan, for its annual consumption only reaches 5m tonnes. An increasing growth in the country's automobile and construction industries, as well as, large scale hydra-power projects dam construction, has contributed to the increase demand in steel.
According to statistics for 2009, the world crude steel production stood at 1.2 billion tonnes, wherein Pakistan's share is merely about 0.24 percent. This speaks volumes of a huge potential of investment and growth opportunity in the steel sector of Pakistan.
It is important to note that Pakistan's annual demand for steel is around 8.4 million tonnes, while production is 4.9 million tonnes per year.
The current scenario of Pakistani steel sector indicates a huge growth potential in this industry. The per capita-consumption of steel in Pakistan is only 38 kg vis a vis a global average of 175 kg. Even if we consider the very modest increase in per capita steel consumption to 80 Kg in next 10 years, the steel requirement works out to be 16 million tons per annum for a population of around 200 million by year 2020.
It is important to note that Pakistan's annual demand for steel is around 8.4 million tonnes, while production is 4.9 million tonnes per year.
Many notable foreign investors and analysts insist that Pakistan is evidently a multi- billion dollar market, an for this goal to achieve it needs a number of quality steel manufacturing projects so that it does not only become self-reliant in steel sector but also can enhance its share in global engineering arena.
As a step towards the above mentioned vision, Tuwairqi Steel Mills has established a Technology Centre and Applied Research Centre for human resource development.
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Comparative Imports of Metal Group during July-March, 2008-09 and 2009-10
Sr. # Item 2008-09 2009-10 Percentage (July-March) (July-March)* Change Metal Group 1883.2 1787.3 -5.1 G. % Share (7.2) (7.1)
41 Gold 18.9 117.1 519.6
42 Iron and steel 439.5 326.8 -25.6 scrap 43 Iron and steel 983.6 872.3 -9.5
44 Aluminum 87.8 102.3 16.5 wrought & worked 45 All others 373.4 368.8 -1.2 metals & artifacts
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Government’s Role: Tariffs and taxes
• The Ministry of Industry and Production recently proposed imposing a 10 percent-15 percent import duty on steel products in order to protect domestic production and sales. The import duty will be imposed on three categories: galvanized products, cold- and hot-rolled coils. Pakistan Steel Mills, the country's largest steel producer, has been severely affected by the decline in steel prices worldwide. • In view of the present scenario in the steel sector, Pakistan's government has formulated a National Steel Policy. The policy aims at bridging the demand- supply deficit in the country by increasing domestic steel production capacity to 15 million tons per year by 2020.
This augmentation in production capacity can sufficiently be sufficed through ample domestic iron-ore deposits. Pakistan has proven iron ore reserves of about 1.42 billion tons. The country's primary deposits are located in North West Frontier Province, Baluchistan and Punjab. These regions account for 947 million tons of iron ore reserves and are estimated to contain 20 percent- 60 percent of iron content. Kalabagh, which has about 450 million tons of reserves, contains 30 percent-35 percent of iron.
The new steel policy also proposes the development of steel mills in these regions. This would not only increase production but also bring down manufacturing costs. The government has planned duty cuts, assistance in land acquisition, and development of infrastructure to attract foreign and private sector investors to set up manufacturing facilities. Pakistan's first private sector steel plant is being developed in Bin Qasim by Al-Tuwairqi Holding (Dammam, Saudi Arabia) at an investment of $300 million
• Manzoor Ahmed Wattoo, Pakistan's Minister of Industry and Production, recently said the government is proposing to fix the prices of local steel products manufactured by state-controlled Pakistan Steel Mills Corporation Limited (Karachi, Pakistan) to be on par with international market standards. The proposal aims to not only integrate the steel industry in the country but also evolving a transparent, open system of operations.
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Presently, steel companies in Pakistan do not conform to international steel prices but carry out price fixations independently. The Ministry also stressed the need for a committee to ensure steady supply of raw materials for the industry. The rates and taxes on steel products in Pakistan have not been altered despite the slump in steel prices globally.
Auxiliary Industries
The steel industry is considered the mother industry of all industries, particularly the engineering industry.
Cold Rolled Sheets Galvanized Sheets Cold and hot- Enameled ware Containers formed Bicycle Ducting equipment Steel Fabrications Steel fabrication Water heaters Furniture Drums Steel shuttering Vehicle and Bus Barrels Desert coolers Bodies Jerry-cans Boxes & Utensils Building Construction Steel furniture Air-conditioners Steel Doors and Machinery trunks Windows Vehicle and bus Fresh water tanks Miscellaneous bodies Paneling appliances Machinery and Steel container Construction and Equipment steel container roofing
SWOT analysis Pakistan Steel Industries
Strengths: • Cheap labor • Low cost • Rebuilding of infrastructure in Afghanistan
24 A Brief Analysis of the Pakistan Steel Mill
Weaknesses: • The majority of Pakistani Steel is produced through small steel mills, which utilize outdated hearth process, and Pakistan has yet to modernize its steelmaking processes considerably. • Labor productivity in Pakistan is very low. • Steel production in Pakistan is hampered through power shortages, and this hindrance is less likely to be resolved in the near future. • In addition to being scarce, energy is also expensive thus contributing towards incompetence of Steel Mills. • Poor infrastructure. • Lack of R&D investment • Dependence on imports for steel manufacturing equipments and technology. • Raw materials are also being imported from Australia and Canada. Greater distance and high freight charges- increased cost of production. • Price of domestic steel is dependant on international markets. • Local demand is unsatisfactory and needs to be encouraged, especially Construction and Housing sector. • Substandard raw materials are being smuggled across Afghanistan • Production process is not environment friendly- not implementing innovative process technologies that reduce emissions and wastages, sludge and dust. • Only 60% of the capacity is being utilized • Lack of management skills and information systems in the industry • Machinery is old and needs repairs and upgrades. • In the world steel industries there is a paradigm shift from technology oriented to value enhancement. • Inconsistent policies resulting in poor investor confidence as portrayed by the failure of privatization
OPPURTUNITIES: • Govt. reduced GST, additionally EDB is proposing a 0% sales tax. • The large iron ore and coal reserve of Pakistan provide good opportunity in the steel sector for enterprising investors. • The Engineering and Development Board (EDB) of the ministry of industries and production has evolved the long term ‘National Steel Policy’ with a view to cover the widening demand and
25 A Brief Analysis of the Pakistan Steel Mill
supply gap by achieving a production target of 15 million tonness of steel by 2020. • Pakistan to shift its focus from textile & agriculture to heavy industries. ( heavy industries 60 % of world trade) vision 2030. • Setting up of high tech plants ( Tuwairqi Steel Mill ). • Transfer of technology and enhancing quality of manpower through setting up six engineering universities. • Kalabagh and Chiniot have known deposits of iron ore that have not yet been excavated and utilized by the local steel industry, as importing iron ore, iron and steel scrap was cheaper than mining local ore a capital-intensive venture. With global steel and iron ore prices skyrocketing there is hope that both International and domestic steel makers have finally decided to excavate and exploit local reserves.
Threats: • Slow growth in infrastructure development. • Possibilities of export growth from China. • Pak Steel Mill --- historically a loss making enterprise. • Recent trends ---imports from India. • Interest rate scenario– will have a bearing on the construction sector. • Increased vulnerability to international market trends. • Lack of professionalism (implementation of technology).
Recommendations:
Improving Efficiency, Reducing Costs, and Increasing Overall Competitiveness.
26 A Brief Analysis of the Pakistan Steel Mill
Electric arc furnaces are a common method of reprocessing scrap metal to create new steel, and this process does not need much electricity. This process can also be used for converting pig iron to steel.
Ship breaking used to be a vital source of scrap for processing steel. However, the prices of ships have also increased with demand for iron and steel. Due to the high profits and high freight rates shipping companies are extending the working period of their vessels to even more than the normal usage life, i.e. 25 years, therefore leading to increasing ships demand in international market.
Rising scrap prices were forcing the prices of steel products in country to shoot up which cannot be contained by furnace casting mills them selves. Pakistan’s current steel demand is around 5 million tons per year and only 3 million tons is produced so the remaining gap of 2 million tons steel is being imported in the country, he added.
• Focused research and development activities in collaboration with foreign experts. • Financial needs to be addressed by the banks. • Management of Mineral Resources. • Beneficiation of low grade Indigenous Iron ore. • Promote private public partnership in Steel sector. • Development of Human capital. • Committee of technical experts should be formed to study indigenous raw materials. • Benchmarking studies, Countries using low grade Iron Ore e.g. China , Germany , Mexico etc. • Constitution of a coordination committee having members from both private sector and government. • As the Chinese are using Iron Ore with the properties similar to that of Pakistani Ore, a visit of to Chinese Steel industry may also be arranged. • The government should focus on developing and supporting mini steel mills which require less capital investment and based on supply from local iron ore deposits in Punjab, Khyber-Pakhtunkhwa, and Baluchistan, say observers. • These state of the art mini mills prove to be more cost effective, require less capital investment and are easier to modernize instead of revamping PSM which has out-dated technology and worn-out machinery. But there are many hurdles to cross including importing under a clear and transparent scheme.
27 A Brief Analysis of the Pakistan Steel Mill
FUTURE PROSPECTS
Extracting domestic Iron-Ore Reserves
According to the Geological survey of Pakistan, Kalabagh (Mianwali district) holds substantial iron ore reserves at an approximate 9,300 million tons. Given this, the idea of constructing the second largest steel mill at Kalabagh was explored by the Musharraf regime in 2004.
Local raw material procurement would be a blessing to the country’s national exchequer and those who painstakingly import raw materials from countries such as India, Iran and Turkey.
Al-Tuwairqi Steel Mills
TSML is the country's first private-sector integrated environment-friendly steel manufacturing project of Al Tuwairqi Holding, Kingdom of Saudi Arabia. Its complex spreads over an area of 220 acres at Bin Qasim, Karachi, and employs the world's most advanced DRI (Direct Reduction of Iron) technology. Currently it has been installed with an operational capacity to produce 1.28 million tonne DRI per year, which is further planned to be augmented to such an extent so as to replace Pakistan Steel Mills as the largest Steel Mill in Pakistan.
TSML will not only be a source of transfer of the latest technology of quality steel making, it will also be helpful in giving impetus to the industrial progress in Pakistan. It will open up new avenues of investment in similar plants besides giving a boost to the downstream industries of the country. In the context of human resource development, TSML will create around 1,000 direct and about 3,500 indirect job opportunities.
28 A Brief Analysis of the Pakistan Steel Mill
PAKISTAN STEEL MILL
INTRODUCTION:
The engineering goods industry is recognized world over as most critical for the development of a self reliant and vibrant economy. This industry, however, depends heavily on basic metals, especially Iron & Steel as resource inputs. The Iron & Steel industry, therefore holds the key for sustained growth of the engineering sector and hence for development of the economy as a whole. As such the steel industry can be termed as “Mother industry” to all modern industries, being the basic source of metal for them. In this, prospective the importance of national assets such as Pakistan Steel which is determined on their strength and ability to sustain the national growth rate, need not to emphasized. Abundant steel sufficient power adequate transports are otherwise industrialization of developing countries today.
The construction of Pakistan steel was started from 1973 and completed at a cost of 24700million rupees. Pakistan Steel today is the biggest industrial undertaking having production of 1.1 million tons of steel. The management of Pakistan steel has taken serious decision to restructuring of Pakistan steel mills for increasing their savings. To serve they announced V.R.F to their employees. They do this because they want to reduce the strength of employees who are now at the end of their fobs. Pakistan now and all the time is the industry that can provide millions of rupees per month but by good way. So through new way they not only reduced production cost but also can increase the savings.
Located some 40 kilometers to the East of Karachi, Pakistan Steel and its related facilities are spread over an area of 18,600 acres, or about 29square miles. The construction of complex involved the use of 1.29 cubic meters of concrete, 330,000 tonnes of machinery, stee structure and electrical equipment, and the employment of over 40,000 workers at the peak of construction.
In January 1971 the government of Pakistan and USSR signed an agreement, the latter undertaking to provide technological and financial assistance for the construction of a coastal based integrated steel complex. The total capital cost ot project is estimated at about Rs. 1407 billion.
Designed to yield an annual production capacity of 1.1 million tones of steel, the Pakistan steel which was the outcome of collaboration between former USSR, and Pakistan signed a historic agreement under the terms of which the former agreed to provide techno financial assistance for the construction of a coastal based integrated steel complex.
It took some time for a follow-up action after the signing of the agreement that did not come up till 1976. but once the spade work had taken shape, the auxiliary work was completed in record time.
29 A Brief Analysis of the Pakistan Steel Mill
The first coke oven battery was commissioned in April, 1981, the Billet Mill in October, 1982,, the tow converters, one bloom caster and two slab casters of steel making plant between December, 1982 and November 1983 the hot strip mill in December 83, the second blast furnace in August 84, the cold rolling mill in December 84, and the Galvanizing unit in August85 another unit, Billet caster was added in November 1989.
For a person of modest qualification in earth science, computer, electronics and metallurgy it is not easy to understand the complex nature of the function of the Pakistan steel. One has to be an in-person, totally absorbed with the process of the mill to understand the complexities of the job. And for some valid reason, in more than one ways, the Pakistan Steel is a next century venture that is being constantly modernized to keep steps ahead of its time.
Some of the main products of Pakistan steel are coke(215000 tones per year) cast billets (135000tonnes per year) rolled billets (260000 tones per year) pig iron (135000 tons) hot rolled sheets/coils (445,000 tones per year) cold rolled sheets (90000tonnes per year) galvanized sheets/coil (100,000tonnes per year) and formed section (120000tonnes per year).
Since Pakistan steel is based on imported raw materials, a special jetty has been commissioned by the port Muhammad Bin Qasim Authority for Pakistan steel. All imported raw material, viz. iron ore, coking coal and manganese, is transported to the main plant 4.3 kilometers away through a conveyor belt. The same job if done through conventional methods would have taken hundreds of trucks and many thousands of man-hours. For unloading of the4 raw material from ships, two unloaders of 1000 tones an hour capacity each has been installed at the jetty by Pakistan Steel.
The multi-billion rupee Pakistan steel has opened a new vista of opportunities for a long line of dealers, sub dealers and agents who operate as outlets of Pakistan steel throughout the country.
A number of the products of Pakistan Steel have sprung up in its vicinity and in many parts of the country.
Abundant steel, sufficient power and adequate transport are absolute necessities for rapid industrialization of developing countries. If one desires to find out what Pakistan steel or for that matter Tarbela Dam, has done for country, one will have to venture back into time, into the early 70s when Pakistan steel was only a sketch on the drawing board.
It took Pakistan steel just a couple of year to overcome the teething problems. Its recently improved qualitative performance is now a matter serious discussion beyond Pakistan. The quality durability and fineness of its wide range of products has been acknowledged in the region, so much so that the production of the mill has been soaring at a rapid rate, achieving 100% level successively in March, April and May, 1996.
30 A Brief Analysis of the Pakistan Steel Mill
HISTORY:
After independence in 1947, it did not take long for Pakistan to would be impossible without the possession of a self reliant iron and steel making plant. The dependence on imports would cause serious setbacks to the country along with an extortionately high import bill which would be impossible to support.
The initial idea for a domestic iron and steel mill was put forward in the first five year plan of Pakistan (1955 - 1960). Debates over the manufacturing process, supply sources of the requisite machinery and raw materials, plant site, domestic ore versus imported ore, ownership pattern, product mix and above all foreign financing credit kept the project on hold for a considerable time.
In 1968 besides other factors, it was considered by the Government of Pakistan that a basic steel industry should be established in the public sector, as public sponsorship of the project would enable integrated development of the steel industry in the country. In light of this, the government decided that the Karachi Steel Project should be sponsored in the public sector for which a separate Corporation under the Companies Act be formed. As a result on the 2nd of July, 1968 Pakistan Steel Mills Corporation was setup as a private limited company in the public sector in accordance to the Companies Act of 1913, with the objective to establish and run steel mills at Karachi and other places in Pakistan.
In January, 1969, Pakistan Steel concluded an agreement with V/O Tiajproexport of the then USSR for the preparation of a feasibility report into the establishment of a steel mill at Karachi. Subsequently in January, 1971 Pakistan and the USSR signed an agreement under which the latter agreed to provide techno-financial assistance for the construction of a coastal based integrated steel mill at Karachi.
The foundation stone for this gigantic project was laid on the 30th of December, 1973 by the then Prime Minister Mr. Zulfiqar Ali Bhutto. The mammoth construction and erection work of the integrated steel mill, never experienced before in the country, was carried out by a consortium of Pakistani construction companies under the supervision of Soviet experts.
31 A Brief Analysis of the Pakistan Steel Mill
...... Pakistan Steel did not only have to construct the main production units but a host of infrastructure facilities involving unprecedented volumes of work and expertise. Component units of the steel mill numbering over twenty and each a big enough factory in its own right were commissioned as they were completed between April, 1981 to August, 1985 with the Coke Ovens and By Products Plant coming online first and the Galvanizing Unit last. Commissioning of Blast Furnace Number 1 on the 14th of August, 1981 marked Pakistan's entry into the elite club of iron and steel producing nations. The project was completed at a capital cost of Rs. 24,700 million. The completion of the steel mill was formally launched by General Zia-Ul-Haq the then President of Pakistan on the 15th of January 1985.
Today Pakistan Steel is the country's largest industrial undertaking having a production capacity of 1.1 million tones of steel. The enormous dimensions of the project can be visualized from the construction inputs which involved the use of 1.29 million cubic meters of concrete, 5.70 million cubic meters of earth work (second to Tarbela Dam), 330,000 tones of machinery, steel structures and electrical equipment. It’s unloading and conveyor system at Port Qasim is the third largest in the world and its industrial water reservoir with a capacity of 110 million gallons per day is the largest in Asia. A 2.5km long sea water channel connects the sea water circulation system to the plant site with a consumption of 216 million gallons of sea water per day.
Pakistan Steel did not only have to construct the main production units but a host of infrastructure facilities involving unprecedented volumes of work and expertise. Component units of the steel mill numbering over twenty and each a gig enough factory in its own right were commissioned as they were completed between 1981 to 1985 with coke oven and By product plant coming on stream the first and the Galvanizing unit the last. Commissioning of blast furnace No. 1 on 14 august 1981 marked Pakistan’s
32 A Brief Analysis of the Pakistan Steel Mill
entry into the elite club of iron and steel producing nations. The project was completed at a capital cost of Rs. 24700 million. The completion of the Steel Mills was formally launched by the president of Pakistan on 15 January 1985. Pakistan Steel today is the country’s largest industrial under-taking having production capacity of 1.1 million tones of steel.
The above figures illustrate the massive civil works, intricate erections, installations of sophisticated electrical and mechanical equipment. With the completion of Pakistan Steel, the local contractors gained the technical ability till then unknown, which they utilized later to undertake million dollar projects both within the country and abroad especially the Middle East.
Our vision:
To become a leading steel company in south Asia committed to serving stake holders by offering quality products through an innovative and cost effective manner in accordance to environmentally friendly conditions.
Our Mission :
Pakistan Steel is committed to be a leadering steel industry by:
1 Greater response to customer's present & future needs. 2 Focus on productivity and Quality. 3 Facing Challenges of free Market Economy. 4 Ensuring higher rate of return on invested capital. Developing Human resource and motivating employees’ 5 .through .empowerment and hard consequences. 6 Safe Working and Environment friendly conditions. Minimizing process wastages, rejections and recycling 7 .wastes. 8 Good Governance. 9 Fulfilling Social Obligations.
10 Improving Corporate Image.
OBJECTIVES:
33 A Brief Analysis of the Pakistan Steel Mill
1. Development of corporate culture and good governance characterized by participation, consensus, orientation, accountable accountancy, responsiveness, effectiveness, and efficient observance of rules of law. 2. Keeping a constant eye on bottom lone to maximize profit and race. 3. Acquiring and employing technology through research and development for increasing productivity and quality to reach DPR levels in 3 to 5 years. 4. Aiming at TQM system by 2010 by making quality. 5. Ensuring cost competitiveness by offering 1% annual investment I yield wherever required. 6. 10% annual reduction of inventory till achieving level of 4-6 weak productions. 7. ISO certification by December 2002. 8. Orientation and commitment of employees to the mission by 2002. 9. Promoting indignation by facilitating use of 5% raw material by 2003. 10. 10% increase in recycling of wastes by 2003. 11. Eliminate goods in transit by following better procurement policies by 2003. 12. Attaining designed values of consumptions of utilities by December 2003. 13. Introduction of next level of automation by 2005. 14. Diversification of product mix through BMR by 2006. 15. Phase wise expansion up to 3.0 million tones of raw steel by 2012
LOCATION AND SITE:
PAKISTAN STEEL is located at a distance of 40km South East of Karachi at Bin Qasim in close vicinity of Port Muhammad Bin Qasim. It was found to be an ecologically preferable location, alongside a tidal creek and having wind direction away from the city of Karachi. PAKISTAN STEEL is spread over an area of 18,660 acres (about 29 squares miles) including 10,390 acres for the main plant, 8070 acres for township and 200 acres for 110 MG water reservoir. In addition it has leasehold rights over an area of 7520 acres for the quarries of limestone and dolomite in Makli and Jhimpir areas of district Thatta.
34 A Brief Analysis of the Pakistan Steel Mill
EMPLOYMENT OPPORTUNITY: PAKISTAN STEEL provides employment to more than 14,500 person on regular basis whereas about 3000 daily wage workers and retainers are engaged on piece job basis including capital repair and emergency works etc, at different complex of PAKISTAN STEEL. During the construction phase about 40,000 persons were engaged. With the establishment of down stream project about 25,000 persons were provided job opportunities while an equal number of persons obtained employment indirectly.
Numbers of Main Products List of By Products
1. Pig Iron. 1. Oxygen
2. Billets products. 2. Tar Cool
3. Galvanized products. 3. Granulated Slag
4. Hot rolled products. 4. Boulder Slag
5. Cold rolled products 5. Refractory
Bricks
6. Coke 6. AMMONIUM SULPHATE
7. Formed Section 7. Nitrogen
35 A Brief Analysis of the Pakistan Steel Mill
SWOT ANALYSIS OF PAKISTAN STEEL MILLS
STRENGTH:
1. LARGE FINANCIAL RESOURCES:
The project was completed at a capital cost of Rs.24, 700 million. It has enough financial resources to increase its plant and supplies of products. It is patronized by the government of Pakistan which provide it financial aid when needed
2. LARGE SIZE.
It is Pakistan‘s largest industrial unit. It provides jobs to thousands of workers. It is producing enormous steel products for customers both local and international. So it earns more revenue than any other organization.
3. GREAT COPMETETIVE SKILLS:
It has been working consistently in steel production sector so it has achieved great competitive skills. It has ability to face strong competition.
4. ECONOMIES OF LARGE SCALES
It has been enjoying the benefits of large scales. Due to large production its cost of production is kept at minimum.
5. EXPERT EMPLOYEES
Continuity of operations has enabled its employees to achieve great operational skills. Its employees are very skilled than other related industries.
6. A LEADER IN STEEL PRODUCTS
36 A Brief Analysis of the Pakistan Steel Mill
It inaugurated the production of steel products in Pakistan. it enjoys the confidence of people in its supplicated products.
7. GOVERNMENT SUPPORT
It enjoys the patronage of government of Pakistan. It also enjoyed financial assistance from government of Pakistan.
8. EFFICIENT FUNCTIONING
It is functioning efficiently under quality administration. It is following internationally recommended principles in its controlling.
9. PERFECT LOCATION
It was found to be an ecologically preferable location, alongside a tidal creek and having a wind direction away from the city of Karachi. It is located on a very critical location. It is located near sea port and also linked to major highways. So it has no difficulty in transportation.
10. RELATIONS
It enjoys strong relations with government officials. It also enjoys good relations with its customers both local and foreign.
11. COMPETETIVE ADVANTAGE
Its business model has enabled it to achieve competitive advantage. Its products are very innovative and relatively cheap.
12. INNOVATIVE
It’s a pioneer in steel production in Pakistan so it has been very innovative since its commencement.
13. BY PRODUCTS
It has the Coke Oven and Byproduct Plant coming on stream and the Galvanizing Unit .So it is adding to its profits.
14. MONOPLY
It enjoyed monopoly in steel products for years and earned lots of profits. There is no match to its expertise in steel production.
37 A Brief Analysis of the Pakistan Steel Mill
15. EXPANSION
It is an integrated mill with an annual capacity of 1.1 million tons of raw steel production with a built in potential for expansion up to 3 million tons. 330,000 tones of machinery, steel structures and electrical equipment
WEAKNESS
1. BACKWARD TECHNOLOGY
PSM using the machinery provided to it by USSR.that technology is out dated. It did not install latest machinery to that extent as by its competitors. So it may fall behind in its production capacity.
2. DETERIORATING FINANCIAL POSITION
Due to heavy losses and bad financial policies it is losing its financial position. It’s facing problems in meeting its day to day expenses.
3. MISSING KEY SKILLS
Many of its employees are missing key skills necessary to run it efficiently. So it may harm its productivity.
4. POOR TRACK RECORD
The track record of PSM is very poor. Its has been changing its policies consistently which has damaged its goodwill. Nepotism also affected its working badly.
5. OPERATING PROBLEMS
Due to large size its management finding it hard to control its all functions. Large size is badly affecting its operational controls. Its management is faced with the problem of efficient human recourse management.
6. HIGH LABOR COST
There is a large labor force employed in PSM which has increased its cost of production. Its bearing the cost of many idle workers.
7. DIFFICULTIES IN EXPANSION IN SHORT RUN
Due to heavy operating cost and less financial resources it is very difficult for it to expand its plant. So it may not be able to increase its supply of steel products when there demand rises in short run
38 A Brief Analysis of the Pakistan Steel Mill
8. PRAVATIZATION
Privatization always shows weakness in a company’s working. The government of Pakistan decided many times to privatize it to three-party consortium at nearly scrape value.
9. NEPOTISM
Hence it was established and controlled by Pakistan government so nepotism has always been there. The employment of favorite persons on key designation has badly affected its efficiency.
10. LOSSES
Due to inefficient administration PSM has been bearing losses for many years. So people were not ready to invest in it. It lost its bargaining power.
11. SUB STANDARD WORKING CONDITIONS
Due to backward technology the working conditions are not according to international standards. It might harm workers health.
12. ORGANIZATIONAL FLAWS
The business plan of PSM is not very impressive so it’s not able to provide steel products at competitive prices to its customers. The controversial privatization has also revealed the weakness of its administration. It is dependent on government support.
OPPORTUNITIES
1. DIVERSITY IN PRODUCTS
Since it has been working for a very long time so it has achieved high skills to produce a large variety of products. So it has ability to satisfy many wants of its customers and increase its profits.
2. WEAK COMPETITORS
Its competitors are new to the market so they are not threatening its profits that much. It is producing more types of goods than its competitors so it is ale to earn more profits.
3. HIGH BARGAINING POWER
39 A Brief Analysis of the Pakistan Steel Mill
Due to large scale of production it purchases raw materials in bulk quantities so it has high bargaining power and enjoys discount from its suppliers. It also produces sophiscated products so it charges comparatively high prices from its customers.
4. CUSTOMER TRUST
As it is a pioneer to the market its customers trust on its products. People prefer to buy its products. So it is generating more revenue than its competitors.
5. MARKET DOMINAMCE
There have been no competitors in market for a very long time so it has achieved dominance in the market. The customers prefer its products.
6. INTRNATIONAL SCOPE
It is also supplying its products to foreign customers. So it enjoys higher profits than its competitors. is equipped with all the necessary facilities, conforming to International standards.
7. SUB UNITS
It also has capacity to build its sub units. So it can produce a variety of goods than others in the business.
8. INCREASING DEMAND FOR PRODUCTS
The demand for steel products is always on the rise. So it has the opportunities to generate revenues.
9. RELATED GOODS
It has the ability to produce related goods demanded by its customers. It has a great scope to increase its sales.
10. NATURAL DISASTERS
There has been an increased demand for its products due to natural disasters. Its products have the ability to guard against natural disaster like earthquake. The people are building their homes with the support of steel products so demand for its products is increasing and so are its profits.
40 A Brief Analysis of the Pakistan Steel Mill
11. SUB INDUSTRIES
There are many industries that use its products as raw materials to produce their goods. So demand for its products is ever rising
12. FAST MARKET GROWTH
Due to heavy labor force and large capital it has the ability to increase supply of its products when demand for its products increases.
13. ORGANIZATIONAL GOALS
It is fully committed to become no.1 organization in steel products in south East Asia. So it tempting its employees to work hard
THREATS
1. NEW COPMETITORS
With the entrance of new competitors the sales of PSM has decreased. So it’s facing tough competition in this field. The emergence of new steel product producers is threatening its profits.
2. WRONG GOVERNMENT POLICIES
The previous government took many wrong steps like selling of PSM at lower rates. These kinds of policies are threat to its existence. It was being privatized in indecent haste, ignoring profitability aspect and assets of the mills by the financial adviser before its evaluation.
3. ECONOMIC CRISES
The current economic crises have a bad impact on PSM’s profitability. There has been a considerable decrease in demand for its products due to decrease in people’s income.
4. ADVERSE DEMOGREPHIC CONDITIONS
The demand for steel products is ever changing. The people are switching to substitutions. So it may harm company’s profits.
5. GROWING COMPETITION
The number of competitors in steel products is increasing. It has an adverse affect on PSM’s revenues.
6. LABOR UNIONS
41 A Brief Analysis of the Pakistan Steel Mill
Labor unions always a threat to a company so is the case with PSM. Labor unions may go to strike when their demands are not fulfilled. Strikes may affect badly its working
7. RISE IN OIL PRICES
The rise in oil prices increased its cost of production. It was forced to sell its products at higher prices which decreased demand for its products.
8. MISMANAGEMENT
Due to nepotism the management of PSM is very inefficient. Key positions are held by people who are not eligible for their current posts. So it is a major threat to its profitability.
9. INABILITY TO PAY LOANS
The PSM took advances from many sources including banks and government but at one stage it was unable to pay its debts and it was near insolvency but government helped it to get out of this situation but it is still threatened by its creditors.
10. WITHDRAWAL OF GOVERNMENT SUPPORT
The government wanted many times to withdraw its support due to non profitability of PSM. If it continues to work at no or lower profits the government may think it wise to sell PSM to foreign investors.
11. INADEQUATE HUMAN RESOURCE MANAGEMENT
Since PSM is working on a large scale it needs highly educated people to control its labor efficiently. But due to non availability of these people it is not working at a level where it should so it is a great threat to its profits.
12. COTROVERCIAL PRIVATIZATION
This action drew wide spread condemnation from all sections of Pakistani society at large and Steel Mill workers in particular. They threatened to go on strike if government did not take its decision back.
13. GLOBALIZATION
It is a major threat to its profits. With the introduction of multinational companies in Pakistan its revenues may decrease.
42 A Brief Analysis of the Pakistan Steel Mill
14. FREE MARKET ECONOMY
Free market economy may cause it to lower its product prices. Its profits may decrease.
15. POLITICAL INSATABILITY
Pakistan has been suffering from political instability for many years. Still it not as stable as it should. So it really has a negative effect on its profitability.
Pakistan Steel Mills Factor Conditions and Issues
Infrastructure: • The machinery of Pakistan Steel has become old and it needs renovation and improvement. Moreover, it the machinery is being run badly in the past years. • Only 60% of the capacity is being utilized and no steps are being taken for the capacity expansion.
Raw Material: • The basic raw material for the steel melting industries is the steel scrap. The scrap is classified into different categories, by each factory, depending on the quality and use. Scrap of different categories is generally stored in separate piles. Following types of scrap are in common use, in varying proportions, in different factories. o Pressed Oil & Paint Tins o Pressed Used Beverage Cans (UBC) o War Scrap o Ship Breakage Scrap o Parts of Vehicles and Machines • Main raw materials of steel industry include steel scrap, fluxes, Ferro alloys and coke, whereas steel scrap is used in abundance in comparison with other constituents. • About 1,000,000 ton steel scrap in total, inclusive of 400,000 ton scrap imported from countries like Middle East, South Africa, Australia, and Europe, is consumed annually in Pakistan for melting.
43 A Brief Analysis of the Pakistan Steel Mill
• MS billets, steel ingots and other steel scrap form the main raw material for steel re-rolling mills, obtained from Pakistan Steel Mill Karachi and other steel smelters all over the Pakistan. • Raw materials are being imported from Canada and Australia, which are far away, involving huge freight charges. Other major countries are South Africa, South America and Europe. • PSMC, imports 100% of it iron ore and coal requirements, whereas fluxes are procured locally. • Contracts with India and Iran have been signed for import of iron ore, which seems convenient and feasible. • Major sources of supply of coking coal are not available, which is now being imported from Australia. • The price of domestic steel is dependent on international factors since 75 per cent of our steel demand is met through imports. • Smuggling of sub-standards raw material
Labor: • About 90 per cent employees are over 40 years old and some of them are not maintaining good health. • There has been no fresh induction in last decade creating a vacuum. However, induction in the three tiers started in 2005-06. This includes enrolment as apprentices, Junior Officers based on their diploma and other technical performance, and finally induction as assistant managers in various professional disciplines through an open and transparent system of selection. • Metallurgical Training Center (MTC) has been undertaken with selection on merit and effective arrangements have been made for on-job-training (OJT). • Contract with Ukraine, Japan, China, Russia and Iran have been signed for mutual co-operation in training of our engineers. • Labor agitation over privatization
Technology • Innovative process technologies that reduce emissions and wastes (sludges, dusts, CO2) are not implemented. • Advanced recycling solutions that convert wastes into valuable products are also not available • There is a paradigm shift in the world steel industries where companies are becoming less and less technology-oriented and more and more “value-enhancement” oriented. This is reflected
44 A Brief Analysis of the Pakistan Steel Mill
by the efforts of producers to improve the quality and value of their products as exemplified by the development of new and ultra-high-strength steels .The creation of higher-value steel grades through innovative product development is an important step for maintaining and expanding existing markets, as well as for securing niche markets. Pakistan, however, has been unable to inculcate this shift in its local industry. • There is a lack of management skills and information systems in the industry which if implemented can drastically reduce the cost of production. This cost reduction can be realized through an improvement of business processes (investment strategy, organizational aspects, flexible and just-in-time supply, etc.), partnerships with suppliers and service partners, as well as by the permanent optimization of production routes, equipment and logistics. • Failing state of Coke Oven Batteries which need immediate reconstruction to produce Coke urgently needed for survival of Blast Furnaces, as well as Billet Mill’s which is dependent on Coke Oven By-Product gases • Coke-Oven Batteries, Hot Strip Mill and Steel Making Department remained totally ignored because of financial crunch and non- professional approach with which the mill was being run.
Utilities: • Electricity: Electricity is the main, most expensive and most consumed utility in melting industry, with a reported consumption range of 400-1300 kWh per ton of product. About 96-99 % of the total electricity is consumed by the furnace; and rest for other purposes including lighting, overhead crane and motors. • Water: Major common water uses include the following: o Make-up water for furnace coil water-cooling tower o Cooling of moulds o Laboratory o Flue gas scrubbers o Human use • Fuel Gas: Fuel gas is primarily used, in some units, for preheating the ladle. Gas is utilized, also, to meet some of the household requirements in the factory as well as in the residential accommodations, if located within the premises of the industrial unit. • Hundreds of steel re-rolling and re-melting mills in Pakistan either owes their very existence or depends heavily on the ship-
45 A Brief Analysis of the Pakistan Steel Mill
breaking industry for the supply of ship plates. The small re- rolling mills are worst hit by the non-availability of ship scrap as they entirely depends on ship plate compared to the bigger ones which can afford to use a comparatively more expensive iron billet of the Pakistan Steel. The small re-melting mills are facing a similar situation unlike the big counterparts, which can afford to use iron ingot. • The ship breaking industry is in crisis due to 1. Increase in international prices of ship scrap 2. High import duty 3. Excessive taxation
The idling of the ship-breaking industry have forced the steel re- rolling and re-melting mills, particularly the big ones, to replace comparatively less costly ship plate by a more expensive Pakistan Steel billet
• Compared to India (who is a net exporter of steel) Pakistan has to import steel in order to meet its local demand. • PSMC’s entire product mix is sold locally with no export sales.
Environmental Issue
Steel melting furnaces: Steel melting industries are contributing heavily to air pollution. Pollution is generated due to poor quality of scrap bundled. The operation of the induction furnace produces metal dusts, slag and gaseous emissions. 12 Kg of particulate matter is produced per ton of product (at the most). The primary hazardous components of furnace dust are zinc, lead, and cadmium but its composition and contents vary with the scrap quality and furnace additives.
Re-rolling mills: The only environmental related issue is the occasional discharge of black smoke, which emit when the furnaces are run on furnace oil in winter
46 A Brief Analysis of the Pakistan Steel Mill
Financial Crisis on Pakistan Steel Mill:
Tales of corruption, mismanagement, loot and plunder in the Pakistan Steel Mills (PSM) are far more serious than what is believed or has been reported in the media.
The gravely sick organisation has shown losses of Rs29 billion in the year July 08 to June 09 and another Rs11 billion during the first eight months of 2009- 10 whereas its immediate debt liabilities have grown to Rs32 billion.
The commercial audit of the PSM for the same period has not yet been done but what the Auditor General of Pakistan has concluded in his audit report on the accounts of the PSM for the period July 2007-June 2008 and initial eight months of the last fiscal year (2008-09), is mind-boggling.
It shows losses, irregularities and non-recoveries of Rs39 billion during July 2007-Feb 2009. It is said that if the AGP is allowed to complete his work for the period till Feb 2010, it is feared that the last two years losses may touch Rs70 billion.
In May 2008, when the present regime appointed its choice management in the PSM it had Rs11 billion in cash and Rs10 billion worth inventories in the shape of material. At that time the liability of the PSM was Rs6 billion, or in the comfortable positive territory.
But in March 2010, there is no cash, hardly any saleable inventory available whereas the raw material for the production of PSM is at the minimum
47 A Brief Analysis of the Pakistan Steel Mill
because of serious financial crisis allegedly caused by corruption.
Documentary evidence available with The News shows the PSM as a profit- earning organisation till the financial year 2007-08 despite massive corruption as reflected in the AGP report for 2007-08. These documents show the Mills earning profit of Rs2.3 billion despite the corruption and losses indicated by the Auditor General of Pakistan. The documents show that since July 2000 till June 2008, the PSM has been showing net profit during all these eight years.
The mismanagement in the PSM under the present set-up and with the alleged criminal silence of the ministry of industries and production, the PSM has today become one of the greatest burdens on the public kitty.
Sources believe that this serious damage to this national asset has been caused firstly to make some quick billions for some powerful people and secondly to turn it into a failed asset to pave the way for its privatisation to some selected parties.
Powerful business groups, having right connections in the present political dispensation, are reportedly bidding to bag the entire organisation, just as cronies of Musharraf tried in his regime, at throwaway price. These sources said that while the Pakistan Steel is drowning, all the related suppliers, contractors and dealers have multiplied their fortunes during this period.
These sources believe that the PSM is capable of making a positive U-turn if its management is appointed on merit, qualification and experience, and is saved from political interference.
According to the audited balance sheet of the PSM for the financial year ending June 30, 2009, “During the year the corporation has incurred a huge loss before tax of Rs28.960 billion and there have been various allegations of fraud in the electronic and print media including allegation of wrongdoings in the purchase of raw material and higher freight rates compared to the prevailing market prices. While such rates were based on rates provided in respective agreements, the management failed to re-negotiate the prices to bring them down considering the steep fall in the market prices despite direction of the board of directors to do so. Further, there have been allegations that the corporation had drastically reduced the prices of finished products, even lower than the prevailing market prices with a view to benefiting some customers.....”
The balance sheet admits that the Mills’ current liabilities as on 30 June 2009 were Rs23.37 billion, the figure that has reportedly now grown to Rs32 billion. The share value of the PSM has also reduced in 2008-09 by Rs15.42 and the equity of the Mills has been completely wiped out and gone into minus.
Interestingly in its books of accounts/balance sheet the management talks of losses but is silent about the corruption cases or recoveries to be made.
48 A Brief Analysis of the Pakistan Steel Mill
The balance sheet gives a reference of the corruptions tales as highlighted by the media but it did not mention the observations of the Auditor General of Pakistan.
The sources said that despite huge losses, not even a single contractor, dealer or supplier attached with PSM has been suspended, blacklisted or proceeded against for recovery.
Even the dealers, suppliers and contractors named in the recently lodged five FIRs by the FIA following Supreme Court’s intervention, involving alleged Rs10 billion of corrupted money, have neither been suspended nor blacklisted. Managing Director Rasool Buksh Palpoto, who is also named FIR No 39/2009, continues to be the MD of the Pakistan Steels.
In its report, the Auditor General of Pakistan on the basis of audit conducted for period July 2007 till February 2, 2009, showed losses, misappropriation, losses etc of Rs39 billion. The report contains 73 cases/observations, which were sent to the management of the Pakistan Steel. The PSM management filed its response but the replies were not found satisfactory. The following is the brief of these audit paras:
1- Loss of Rs158.672 million due to purchase of material by splitting the indented quantity and loss of Rs1.612 million by awarding extensions in delivery period;
2- Non-receipt of charging equipment valuing Rs49.603 million and deduction of liquidity damages thereon;
3- Loss of Rs46.860 million due to purchase of Ferro Manganese by splitting of indented quantity;
4- Purchase of Calcium Fluorite valuing Rs19.125 million and non-receipt of material;
5- Purchase of Calcium Fluorite valuing Rs18.838 million from a supplier;
6- Loss of Rs4.334 million due to delay in finalisation of purchase of Ferro Silicon;
7- Non-recovery of liquidity damages of Rs2,964,644 from a supplier and loss of Rs1.644 million as result of 2nd tendering;
8- Non-recovery/replacement of rejected materials valuing Rs4.101 million from the supplier and violation of PPRA Rules by splitting the indented quantity;
9- Irregular/unjustified procedure adopted in PSM regarding procurement of material/goods;
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10- Procurement of materials/goods without advertisement on PPRA’s website by violating the authority’s rules;
11- Irregular/unjustified purchase of vehicles valuing Rs24.240 millions;
12- Irregular/unjustified purchase of new buses valuing Rs38.970 million;
13- Loss of Rs735972 due to expiry of performance bank guarantee;
14- Loss of Rs832.312 million due to sale of coke below cost;
15- Loss of Rs282.377 million due to sale of galvanized coil/sheet below cost;
16- Loss of Rs56.529 million due to sale of electricity at lower rate than its cost;
17- Non-payment of Rs825.646million of government;
18- Irregular payment of Rs63.437 million against WPPF and loss of interest Rs0.847 million paid thereon;
19- Non-recovery of Rs1026.190 million from trade debtors;
20- Non-recovery of Rs285.524 million from different parties;
21- Loss of Rs226.795 million due to shortage of raw material & finished stock;
22- Irregularities identified in stock maintenance valued Rs148.367 million (Net);
23- Non-receipt of store valuing Rs1831.223million shown under store in transit;
24- Irregular/unjustified payment of house rent allowance amounting to Rs2.886 million made to the ex-chairmen of Pakistan Steel;
25- Irregular/unjustified payment of house rent allowances involving Rs912.504 million to employees/officers residing in corporation’s residences;
26-Irregular/unjustified expenditure of Rs10.940 million on Hajj;
27- Non-recovery of Rs118.985 million from a contactor in a legal case;
28- Non-recovery Rs77.506 million from a construction company;
29- Loss of Rs32.336 million due to a case decided against Pakistan Steel Mills;
50 A Brief Analysis of the Pakistan Steel Mill
30- Non-finalization of a legal case involving Rs17.244 million and recurring legal expenses since long;
31- Non-recovery of Rs8.878 million from tenants in a legal case;
32- Irregular/unjustified appointment of an advocate at the professional fee of Rs600,000;
33- Inadequate disclosure of stocks valuing Rs13.101 million in financial statement;
34- Non-insurance of official vehicles of Pakistan Steel Mills;
35- Excess expenditure of about Rs14.861 million incurred due to non-use of CNG in corporation’s official vehicles;
36- Regularisation of donation amounting to Rs7.29 million to earthquake victims;
37- Irregular/unjustified payment of Rs893832 as Bonus/ honorarium to staff members/staff personnel of concerned ministry;
38- Non-utilisation of iron ore reserves available in the country;
39- Capacity enhancement needed for PSM survival in the steel market;
40- System weaknesses observed by government audit in different areas;
41- Different quantity shown in different documents regarding production of coke produced in PSM during 2007-2008;
42- Improper utilisation of fixed assets;
43- Non-production of record to government audit;
44- Loss of Rs221.214 million due to extra payment to shipper for two shipments;
45- Loss of Rs163.135 million due to rejection of lowest bid in the first tender;
46- Loss of Rs118.500 million due to award of half quantity to the 2nd lowest bidder by splitting the tendered quantity and thus committed violation of PPRA rules;
47- Loss of Rs88.480 million due to award of half of the quantity to the 2nd lowest bidder by splitting the tendered quantity and thus committed violation of PPRA rules;
48-Irregular/unjustified sharing of US$2.415 million (equivalent to Pak
51 A Brief Analysis of the Pakistan Steel Mill
Rs181.142 million) in duty/taxes claimed by M/S Seasa Goa India;
49- Non-completion of repair work of coke oven batteries involving Rs1872.678 million;
50 -Loss of Rs20.541 million due to excess payment to a supplier of Met Coke;
51- Abnormal delay in finalisation of 6th generation iron ore selection/plan resulting in spot purchases;
52- Less supply of 163,763 MT iron ore (fine) by the supplier under 6th generation;
53- Non-observance of proper procedure for procurement of bulk material through bulk material department;
54- Violation of PPRA’s rules by awarding contract to the second lowest bidder as a result of negotiation;
55- Unjustified criteria for selection of supplier in generation plan/programme;
56- Abnormal increase in freight rate of coal as a result of revision;
57- Unrealistic strategy in fixation of sale price of PSM products during the year 2008 resulting in depriving of sales revenue of Rs9673 million;
58- Loss of Rs7,151 million due to sale of steel products below cost of sale during July-2008 to January-2009
59- Announcement of free credit policy resulting in favouritism to the select dealers amounting to Rs644.565 million;
60- Loss of Rs97.769 million due to sale of electricity to KESC below cost of production;
61- Irregular award of sale contract and undue favour to a dealer for credit sale of billet valuing Rs76.220 million;
62- Non-selling of finished goods stocks valuing Rs4,963,276;
63- Utilisation of Rs7,514 million from employees fund;
64- Piling up of finished goods, main & by-products resulting in blockade of Rs4,268.326 million as on 28-02-2009.
65- Sale of 6,917.520 (MTN) of billets to Abbas Group of Industries during February 2009;
66- Utilisation of funds of Rs16,080 million by PSM during first six months of
52 A Brief Analysis of the Pakistan Steel Mill
2008-09 from cash & bank balance & employees provident fund.
67- Undue favour to Abbas Group of Industries after reduction of sale price of billets from Rs53,500 PMT to Rs34,000 PMT
68- Unjustified variation in fixation of sales price of billet;
69- Posting of non-qualified officers against different designations in sales and marketing department;
70- Registration of Abbas Group as consumer and trader at the same time in violation of standing orders;
71- Registration of dealers for the sale of products in non-transparent manner;
72- Non-imposition of penalty on the defaulting dealers on expiry of NOR for the quantity of 389,943 MT of different products of PSM;
73 -Loss of Rs1.842 million due to non-lifting of material by the buyers within stipulated time.
(Note: The News will welcome a detailed rejoinder from Pakistan Steel on all these points raised by the AGP Report)
Raw materials import by PSMC: banks refuse to open LCs (January 09 2010): Banks have refused to open letters of credit (LCs) of Pakistan Steel Mills Corporation (PSMC) for import of raw material, due to PSMC's poor financial position. Sources told Business Recorder on Friday that PSMC is facing severe financial crisis due to rising cost of production, decline in production and slow sales, primarily due to shortage of raw material for last one and half year.
Despite an assistance of Rs 10 billion from federal government in 2009 the country's largest steel producer so far is facing liquidity shortage and considering to again approach the capital for further financial assistance. They said at present PSMC needs big amount to open LC for import of lump ore and fine ore, the two basic raw materials for steel making.
Sources said that recently the management of PSMC had approached some banks for opening LCs for import of raw material (Lump Ore and Fine Ore) for ensuring continued operation. However, banks refused to open LCs, without initial payment or government guarantee.
They said that owing to the poor financial situation chairman M M Usmani had announced to draw only 75 percent salary for the next three months and has
53 A Brief Analysis of the Pakistan Steel Mill
requested all officers that they should also draw only 75 percent salary. They said Production, Planning and Control (PPC) Department of Pakistan Steel has several times indicated to the management regarding shortage of raw material. However, due to poor planning and mismanagement PSMC failed to solve the raw material problems and is still facing serious crisis of raw material.
"PSMC management in October 2009 assured the PPC that 8 ships from India and Iran would reach Karachi, carrying some 360,000 tons of raw material comprising 140,000 tons Lump Ore and some 220,000 tons of Fine ore," they said.
However, only one ship of lump ore carrying 52,695 tons and two ships carrying 80,255 tons fine ore had arrived till December 15, 2009, while for the remaining ships, no confirmation has been received yet. Already imported raw material quality is not good and damaging billions of rupee worth plant.
Currently, there is a very gloomy situation, as the PSMC has extremely low stocks of fine ore and possibility of total shutdown of blast furnaces, if raw material would not reach in next few days. They said a ship carrying 50,000 tons of Lump ore is likely to reach Karachi in next two days, while another ship carrying fine ore is likely to arrive in 10-15 days.
As per technical point of view, a blend of raw material comprising 30 percent lump ore and 70 percent fine ore is mainly used for steel production, sources said.
However, they said, due to shortage of fine ore, the PSMC management is using more quantity of lump ore instead of fine ore, which is very dangerous for the plant. "Normally, blast furnace is closed for steel production about 15- 20 hours a day for rest purposes, but right now it is being closed for over 30 hours, as Pakistan Steel has limited stock of raw material," they added.
Under Standard Operating Procedure (SOP) rules, PSMC should have 60-90 days' stocks of raw material to run the mill. However, at present PSMC has few tons of lump ore and fine ore stocks. Therefore, management of Pakistan Steel is utilising least raw material for continuing production process. As a result, the corporation's production capacity has decreased to 35 percent, which averaged 70 percent during last fiscal year.
Sources said that PSMC is likely to miss its budgetary targets due to shortage of raw material. The mills overall production of steel products stood at 245,000 tons in the first half of current fiscal year against the annual target of 825,000 tons for 2009-10, which reflects that mills is being worked at 45 percent capacity relative to budgetary target of 85 percent.
Overall sales also reflect a weak position due to poor marketing and PSMC's sales in the first half stood at approximately Rs 12 billion as compared to annual target of Rs 35 billion, they added. Sources said a power tussle between managing director Rasul Bux Phulpoto and chairman M M Usmani
54 A Brief Analysis of the Pakistan Steel Mill
has left the mills on verge of collapse, as both are trying to implement their orders and depute their favourite persons on chief posts. Meanwhile, several attempts were made for the version of PSMC. However, MD Rasul Bux Phulpoto and Shafi Hyder, head of Public relations, did not attend the phone.
SOME IMPORTANT QUESTION AND ANSWERS ABOUT PAKISTAN STEEL MILL
Q-1 Why stell mills is about to be privatized what was the reason behind it ?
In May 2006, the government of General Musharraf privatized Pakistan Steel Mills. The consortium involving Saudi Arabia-based Al Tuwairqi Group of Companies submitted a winning bid of $362 million for a 75 per cent stake in Pakistan Steel Mills Corporation (PSMC) at an open auction held in Islamabad. the consortium of Saudi Arabia-based Al Tuwairqi Group of Companies, Russia's Magnitogorsk Iron & Steel Works and local firm Arif Habib Securities paid a total Rs21.6 billion ($362 million), or Rs16.8 per share, to take control of Pakistan's largest steel manufacturing plant.
55 A Brief Analysis of the Pakistan Steel Mill
Tuwairqi Group of Companies, one of the Leading business concerns in Saudi Arabia, also launched a $300 million steel mills project at Bin Qasim. The group will set up Tuwairqi Steel Mills (TSM), a state-of-the-art steel-making plant in the southern port city of Gawadar, Pakistan.
In response to wide spread public outcry and call for action the Chief Justice of Pakistan took a suo motto action against the privatization citing irregularities in the process. The verdict was delivered on 8 August 2006.[2]
The Supreme Court on 8 August 2006 held that the entire disinvestment process of the Pakistan Steel Mills reflected a haste, ignoring profitability aspect and assets of the mills by the financial adviser before its evaluation. The transaction was the outcome of a process reflecting procedural irregularities, said the 80-page judgment in the PSM case.
On 23 June, a nine-member bench of the Supreme Court had annulled the sale of the country’s largest industrial unit to a three-party consortium and had directed the government to refer the matter to the Council of Common Interests within six weeks. It had declared the $362 million transaction with the Russian-Saudi-Pakistan investors as null and void.
Authored by Chief Justice of Pakistan Justice Iftikhar Mohammad Chaudhry, the judgment said the entire exercise reflected a haste by the Privatization Commission (PC) and the Cabinet Committee on Privatization (CCOP). The PC had processed the 30 March final report of the financial adviser the same day and a meeting of the PC board and a summary had also been prepared the same day when a six week time was mandatory to examine and fix a fair reference price for approval by the CCOP.
“This unexplained haste casts reasonable doubt on the transparency of the whole exercise and reflects CCOP’s disregard towards mandatory rules and materials, essential for arriving at a fair reference price,” it maintained.
The board had proposed to value the share of the mill at Rs17.43 but it was reduced to Rs16.18 without assigning any reason, the verdict said. The verdict said that keeping in view the annual net profit of the mill, its shares’ value should have been ascertained by offering 10 per cent equity of the mills on the stock exchange.
56 A Brief Analysis of the Pakistan Steel Mill
“A constitutional court would be failing in its duty if it does not interfere to rectify the wrong, more so when valuable assets of the nation are at stake,” the judgment said.
Q2- what are the problems facing by Pakistan steel mills? • The first problem that he told us was The majority of Pakistani Steel is produced through small steel mills, which utilize outdated hearth process, and Pakistan don’t have modernize steelmaking processes, lack of technology and transference of knowledge and experience is the main problem.
• Labors aren’t loyal to PSM they don’t work to increase the efficiency of the PSM. They are not running PSM in a way which is best for the company but are looking for their own benefits.
• In Pakistan steel mills there is lack of investment in Research and development if they invest in research and development it will pay back to them.
• Substandard raw materials are being smuggled to Afghanistan that’s why raw material is imported from Canada and Australia
• Only 60% of the capacity of production is utilized.
• PSM is still using old machinery that needs repairs and upgrades, there should be new technology in the plants to improve its productivity.
• Poor management is also a problem for PSM.
• Corruption is another problem for the PSM Q3- when Pakistan steel mills beared historical loss or the recorded highest loss?
The period ending June 30, 2009. PSMC revealed a loss of 22.143 billion during the June-July compared to a profit of Rs 2.375 billion in fiscal year 2007-08.After an eight year profitability the steel mills started posting its losses from august 2008, just after thenew chairman Moeen Aftab took over. DATE LOSS/RS Aug 2008 55 million Sept 2008 200 million Oct 2008 660 million Nov 2008 4.1 billion Dec 2008 2.5 billion Jan 2009 2.0 billion
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Feb 2009 2.0 billion Mar 2009 2.1 billion
Q 4:what is the current productivity of PAKISTAN STEEL MILLS and are u doing something to increase productivity?
The current or present productivity of Pakistan steel mills is 1.1 million tons per annum Pakistan Steel Mills has received expressions of interest from 10 companies including Chinese and Russian firms to boost production from its present 1.1 million tons per annum to 1.5 million tons.
“After appointing an international consultant for evaluating the expressions of interest, the process of awarding this contract to a foreign company will be completed within the next three months,” said Imtiaz Ahmed Khan Lodhi, the Chief Executive Officer (CEO) of the Pakistan Steel Mills (PSM).
In this regard, PSM’s management has already given a detailed presentation to the federal ministry for industries and production and the Planning Commission, he said in an interview on Thursday.
According to Lodhi, after starting work on the first phase of expansion, PSM will initiate the second phase named the Green Field Project to double its production capacity to three million tons per year.
He said that PSM has succeeded in restoring the confidence of foreign suppliers of raw materials (iron ore and coal) with import bills amounting to Rs800 million. PSM, he said, has also been approached by private firms registered in Brazil, Indonesia and other countries for supply of raw material. The mill has also devised a new price fixation system with full transparency to ensure better profit margins.
“Next month we will be breaking even. By the end of June 2011, Pakistan Steel will have a small net profit on its accounts,” said Lodhi. Q5: who are the main supplier and main consumers of Pakistan steel mills? When we asked that question he gave us the list of consumers and suppliers that contains the company name , address, phone/Email and field of business.
The main suppliers of Pakistan steel mills are : Company Field Of Address Phone/Email Name Business
58 A Brief Analysis of the Pakistan Steel Mill
Electrical items, cables 76-77 Mairum 021-7770994, 021- & copper Market, 7730340, wires, all M/S Ocean Civil Hospital Mob: 0333 2103614 types of lamps Enterprise Road, Fax: 021 77666603 & ballasts, all M.A Jinnah Rd, Email: [email protected] of Karachi .pk cupper lugs, all types of V- belts Rubber Products: 0437-601765, 0437- Rubber hoses, M/S Darson PO Box No 5, 601632, 0437-605476-all sorts of Industries Darson Road, 79 rubber sheets, (PVT) G.T Road, Fax: 0437-600035 all sorts of Limited Wazirabad Email:[email protected] rubber moulded goods Supply of machinery equipments & 4531921-3 spares, repair Direct: 4547366, & 47-E/1 Block-6, Tabani 4311054 maintenance PECHS, Corporation Email: of electrical & Karachi [email protected], power [email protected] equipments, general trade & technical services Ferro alloys, spares, iron & steel rolled 6/16 Kaka products, Street, 021-7735381 Naaz hardware Off Siddiq Fax: 021-7735802 Trading tools, Wahab Road, Email: [email protected]. Corporation abrahsive Timber Market, pk products, roll Karachi grinding wheels, wood & timber etc Pakistan E-19l, SITE, 2574201-02, 25797351 Welding Welding Karachi Fax: 2579734 electrodes, Electrodes Email: [email protected] cutting (PVT) machines, Limited carbon dioxide wires,
59 A Brief Analysis of the Pakistan Steel Mill
electrical accessories 21-C, National 021-5888731-5, Highway, Grid Fax: 021-5888736 Import/Export, Phase-II Pakistan Email:gridpk@gridholdincommercial (Extension), (Private) g.com services, DHA, Limited Website: www.grid- trading Karachi online.com -75500
The main consumers of Pakistan steel mills are:
Company Field Of Address Phone/Email Name Business Mill: 13-Km, Multan Road, 7511253, 7511805, Lahore Manufactur Zeenat Steel 7511810, 7220676, Office: 40-Steel ers & Sale Mills 7311565 Market, of Pipe. Fax: 722494 Dil Mohd. Road, Lahore Factory: 13,5- Km, Sheikhupura- Mill: 7351486, 7358422 Manufactur Faisalabad Road, Imran Pipe Office: 04931 882167-8 ers of steel Bhikhi District, Mills (PVT) 04931 882367-8 pipes, Sheikhupura Limited Email: imranpipe@yahoo. tubes & Office: 15- com profiles Roberts Road, Nila Gumbad, Lahore 9-Km, Manufactur Rizwan 7922373-4, 7924643 Lahore- ers of steel Industrial Fax: 7924795 Sheikhupura pipes, Corp (PVT) Email: rizwan- Road, tubes & Limited [email protected] Lahore profiles Works: 23-Km, GT Road, 6361945, 6310440, Muridke, 6368350 Pioneer Distt. Exch: 6371047/6361870 Manufactur Steel Mills Sheikhupura Fax: 6361940 ers of MS & (PVT) Office: 1st Floor, Email: [email protected]. GI pipes Limited Aziz Chamber, pk 21-Shahrah-e- Website: www.psm.com. Fatimah Jinnah, pk Lahore
60 A Brief Analysis of the Pakistan Steel Mill
CABA 27-Km, Multan Manufactur Enterprises Road 7540034, 7540035, ers of (PVT) Maraka, 7541037, 7541038 tractor Limited Lahore parts Factory: 119/2, 5150831, 5050844, Industrial Area 5120828, 7637942- F.A.S Tube Kot Lakh Pat, 3,7654500 Manufactur Mills & Lahore-54770 Email: [email protected] ers of LPG Engineering H/Office: 67-C, et.pk cylinders Industries Meco Market, Website:www.fasenginee Landa Bazaar, ring.com Lahore-54000
Q6- what about the national steel policy and how it is impact in future? The Engineering and Development Board (EDB) of the ministry of industries and production has prepared a draft of the long-term national Steel Policy to cover the widening demand and supply gap by achieving a production target of 15 million tons of steel by 2020.
The policy, to be finalized by August 15, is expected to be formally approved by the Economic Coordination Committee (EEC) of the cabinet by September.
A meeting of all the stakeholders was held on Thursday under the chairmanship of Asad Ilahi, chief executive officer (CEO) of EDB, who shared with them the draft national steel policy, which initially aimed at achieving 10 million tons steel production target by 2015 and then 15 million tons by 2020.
The meeting formed three separate committees to submit recommendations within one month on three issues, which include development of steel industry, mining and raw material for steel and sorting out tariff issues.
“This will be our third policy after the development of auto and trucking policies,” Asad told Dawn after the meeting.
Responding to a question he said the new national steel policy was needed because of the rising prices of iron ore, coal, coke, and the steel products. There were short supplies of major inputs due to monopolisation of resources as a result of mergers and acquisitions.
There was a widening demand and supply gap and the country was faced with spiralling prices in domestic market, he added.
He said that there was a need to make serious efforts to discover untapped resources. Dependence on imports would keep the steel sector exposed to price shocks, long lead time, high sea-freight, and logistic problems.
The committee on development of steel industry would deal with the issues
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like availability of inputs, finished products, devise a mechanism to stabilise prices, product certification, and devise a mechanism to implement and monitor the quality of product.
This committee would also frame a strategy for energy conservation in steel sector, create linkages between industry and academia and ensure the availability of skilled manpower and establishment of factory schools.
Similarly, the committee on tariff will deal with sales tax, multiple taxation, import valuation, import of raw material from neighbouring countries and the facilitation of development of infrastructure and captive power generation plants.
The committee on mining, leasing and development has been entrusted with the job of identification of iron ore and coal deposits, suitable for manufacturing of steel under the public private partnership programme.
The government has been told by the stakeholders that for achieving global competition in price of the steel, it was imperative to fully exploit the potential of available iron ore on priority basis. Presently, the only potential source of iron ore is Nokkundi having 50 million tons of total deposits.
The government was also informed that regional steel mills have to be established based on local iron ore at suitable places in Balochistan and in Punjab to achieve the target of 10 million tons by 2015.
Q7- what are The main products specification from the plant ? Hot rolled sheets have coils of thickness 1.6-10mm and width 630-1500 mm, with a weight of 14.5 tons. Cold rolled sheets have thickness of 0.30-2.5 mm, width 600-1500mm and length 1-4 meters. The weight of the coils is between 14.5 tons and 90 tons. Galvanized sheets and coils have thickness 0.35-1.5 mm with width 700-1500 mm. The weight of the coils will vary between 6.5 tons and 100 tons.
SUGGESTIONS
62 A Brief Analysis of the Pakistan Steel Mill
It should ensure quality management. Its labor should be provided with perfect working conditions. The quality of the products should be raised to international standards. It should also increase marketing for its products. It should also start new subunits to earn maximum profits. It should develop a comprehensive business plan to guard against competition. It should also work to get itself protected from the bad effects of globalization. It should build good relations with its suppliers. It should cut idle labor force. It should recruit employees on merit. It should follow internationally recognized principles in human resource management. Its commitment to quality should not be limited to plant activities alone rather it should be extended the implementation of quality management systems across the whole organization. The management at Pakistan Steel should be fully committed to providing a high level of social accountability to its entire workforce. It should guard against free market economy. The customers and suppliers should be provided with superior services and ideas
63 A Brief Analysis of the Pakistan Steel Mill
BIBLIOGRAPHY
http://www.nationsencyclopedia.com/Asia-and-Oceania/Pakistan- INDUSTRY.html#ixzz0sn556kfD
http://www.arabianbusiness.com/591597-weak-gulf-steel-demand- could-lead-to-oversupply
http://steel.pk/
http://tribune.com.pk/story/13721/steel-industry-beset-with- problems-despite-bright-prospects/
http://steelguru.com/interview/detail/132/Making_Pakistan_steel_sec tor_strong.html
http://www.onepakistan.com/finance/news/pakistan-business- general-news/4198-Year-end-review.html
http://www.fandmmag.com/web/online/Industry-News/Pakistan- Proposes-to-Link-Domestic-Steel-Prices-with-International-Market- Rates/1$3435
http://scrapnews.recycleinme.com/newsdetails-20.aspx
http://steeltimesint.com/news/view/pakistan-has-the-potential-to- increase-its-steel-production-to-16mt-y
http://rupeenews.com/2008/06/12/the-2nd-major-steel-mill-for- pakistan/
http://www.defence.pk/forums/national-political-issues/50870-gravely-sick- pakistan-steel-being-set-up-grab.html
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