The expansion plan


Feb 03 - 09, 2003




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 come.

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 imports.

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.