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Lower global steel prices augur well for the Pakistani economy

Steel production as well as consumption is contingent upon the economic growth. Whenever there is robust economic growth, the consumption and prices of steel move northwards. Economic growth entails monumental government spending on infrastructure which culminates in employment generation, surge in manufacturing, spike in exports or imports, to say the least. Steel is the mainstay of construction sector, machine-manufacturing and automobile sector, to be precise.

It is currently being anticipated that the demand for steel is going to slow down over the period of next couple of years. One of the reasons for the slowdown in the demand is the anticipated lower consumption by China which is the largest producer as well consumer of steel in the world currently. China produces approximately half the steel produced globally.

The tit-for-tat tariff imposition by the two leading economies of the world, the United States and China, seems to be dampening the demand sentiment in the not-too-distant future. The trade dispute between the two leading economies and on top of that the downward economic forecasts by the International Monetary Fund have given credence to the fact that the steel prices would remain subdued for a couple of years. Germany, the largest economy of Europe, has cut economic growth projections. There is no sign of economic stimulus package by China. Chinese economy might grow at around 6%. It is evident from all this that the manufacturing and construction sectors would not perform robustly. Around 50% of the total consumption of the world steel is by the construction sector and 12% consumption is by the automotive sector. Lower demand of steel indicates that there would be less spending for the infrastructure comprising skyscrapers, roads, hospitals, industrial structures etc. This is also indicative of the fact that less vehicles would be manufactured in the prevailing conditions. It must be noted that around 900 kg of steel is used per vehicle. Lower production of vehicles means lower requirement of steel in the global arena which would leave impact on the world economy.

 

Pakistan’s infrastructure is dilapidated and this is an opportunity which Pakistan must not squander. By virtue of lower steel prices, the cost to be incurred on the infrastructure would go down drastically since steel component cost is quite substantial. The incumbent government has pledged to construct five million low-cost houses for the masses for which Singapore and China seem to be playing a vital role in terms of investment and expertise. The government has to capitalize on it sooner rather than later. Out of 10 top crude steel producers namely China, European Union, India, Japan, United States, South Korea, Russia, Germany, Turkey, Brazil and Iran, five countries are in close proximity to Pakistan which may lower the import cost further. Pakistan already has the housing backlog of ten million which needs immediate attention of the concerned authorities. There are some countries where ‘housing-for-all’ strategy is being used by the government so that the burgeoning population may not be facing poor living standards in the days to come. Living standards in the world are gauged by per capita consumption of steel in a certain country. Per capita steel consumption means housing, availability of vehicles, use of machines etc. The higher the per capita steel consumption, the better the living-standards of the countries. Pakistan’s steel consumption is around 25kg per person whereas it is more than 270kg in Asia.

Pakistan, a country with the population of 210 million, needs to tackle the housing issues for a sustainable economic growth in the future. The global population is expected to reach 8.6 billion in a decade from now which might make housing a pressing issue for all governments in the world. The countries with a visionary approach are looking at this issue today for sustenance in the future.

In the case of Pakistan, investment worth $10 billion is said to be spent urgently for infrastructure development to have a sustainable economic growth since Pakistan loses around 2% of its GDP owing to poor infrastructure. The lower global steel prices are blessing in disguise for the economy of Pakistan.

Around $900 billion a year global steel industry comprising over 160 steelmakers may face bumpy ride in next couple of years because of the dwindling world economy, however the countries with the desperate need of world class infrastructure may see this as an opportunity.

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