Pakistan Steel Mill, the largest industrial complex
of the country in the public sector, has decided to make limited use of
indigenous iron ore after debating the issue for a good quarter century.
It has also decided to increase its production capacity to meet the
growing demand for steel products in the country. The decision to use
indigenous iron ore will help the steel mill to save a modest foreign
exchange every year. However, decision aimed at lessening dependency on
imported raw iron ore would offer far-reaching benefits in the years to
An agreement signed between the Pakistan Steel and
Bolan Mining Enterprise, a joint venture government organisation, on
January 8, 2003 ensures the supply of indigenous iron ore to Pakistan
Steel Mill from Dilband, located 650 km from Karachi and 190 km from
Quetta. Dilband has a proven reserves of 165 million tons of iron ore.
The Bolan Mining Enterprise will supply around 100,000 tons of the
indigenous iron ore to the PSM. The local iron ore will be mixed with
the imported ores to an extent of around 15 per cent.
The PSM has been importing around 1.8-1.9 million
tons of iron ore per annum worth $ 50 million from a number of countries
including Australia, India, Brazil and Canada. The PSM will save about $
3-4.5 million dollars in foreign exchanges once it has utilized 100,000
tons of local iron ore.
Though the indigenous iron ore would cost more than
the imported ore and will also push the cost of production the decision
to use locally available iron ore should be seen in the context of
indegenization policy of the PSM. The increased cost will be borne by
the Pakistan Steel by providing a subsidiary of Rs 350-400 per ton as
the price of local ore will be around Rs 1,300 per ton.
Iron ores are available in various areas of
Balochistan province and also parts of Punjab. However, the quality of
local iron ores falls short of the international standards which
requires Pakistan Steel to use 60-65 per cent iron content in its
products. The present contents of iron in Dilband ore range between
35-40 per cent falling short of the international standards followed by
the Pakistan Steel. However, tests carried out by the steel mill show
that 15-20 per cent of the Dilband iron ore can be used in the mixing.
The research is still going on to improve the quality
of iron ore and Bolan Mining Enterprise will install a plant to improve
the iron content of the ore contents to over 40% after 15 months. The
policy of indegenization has come in the wake of turning around of the
PSM 18 months ago as the financial year ended June 30, 2001 was the
period of many firsts for the long financially troubled PSM. It was not
only the year of a financial turnaround but also a year of financial
restructuring, heavy layoffs, record sales, record capacity utilization,
first ever payment of long standing loan, and last but not the least —
the profitability. The PSM has been running recurring losses of over Rs
1 billion every year in the past.
Pakistan Steel (PS) earned a profit of Rs 580 million
during the year under discussion compared to an estimated loss of 540
million in the previous year riding over a wave of unprecedented sales
of Rs 17.54 billion, way above its budgeted target of Rs 15.60 billion.
Capacity utilization rose to 86 per cent, 3 per cent more than the
budgeted capacity of 83 per cent. This fiscal the PSM is set to earn a
net profit of Rs 300 million.
The PSM also has plans to increase its production
capacity from 1.1 million tons to its maximum capacity of 3 million tons
over phases in next 10 to 12 years. The expansion plan will be entirely
self-financed. The demand of steel in the country is over 3 million tons
about one-third of which is supplied by the steel mill. The rest of the
demand is met by the ship-breaking industry, melters, re-rollers and
Steel, like power and cement, is an indicator of
development. A decade ago steel companies were expected to grow by 7 per
cent per year, however, the expected growth did not come as the demand
remained unchanged like it has been for the last three decades. A slump
in construction activities during the recent years, big development
projects in the public sector in particular, has restricted the demand
of the steel but the PSM has still managed to earn a profit this year.
The expansion plan is all the more relevant as
despite achieving the record capacity utilization of 86 per cent in
2000-01 the total production remained below the minimum world standard
of one million ton for an iron and steel mill. Though steel mills in
many other developing countries like Iran, India, Egypt, Korea, Turkey
and Finland started with a production capacity of one million tons, like
the PSM, all of them had expanded their capacity. PSM has managed to
expand its production capacity from 1 million ton to 1.1 million ton but
still trails way behind as these countries almost all of whom has
extended the capacity to 3 million ton.