Jan 07 - 13, 2008

Today, Iron ore has become very important with the rising demand of steel in the international market. Pakistan direly needs to enhance the capacity of its steel mills. The high growth of GDP has triggered astounding growth in various sectors of the economy particularly bringing a surge in steel demand. The per capita consumption of steel surpassed the level of 30 Kg per annum, thus creating a large gap between demand and supply.

The development of indigenous iron ore reserves is essential to make iron available for steel production. Pakistani private sector has already signed agreement with Indian privates sector to import plants worth over $300 million. Pakistan also plans to import plants and machinery from China to be used in the exploration of iron ore. According to an estimate, the country has over 780 million tons of iron ore, which contains 35 percent of iron. The machinery and plants manufactured by China can work in Pakistan, as China iron ore also contains 35 percent iron. The government with the help of private sector is poised to initiate process for iron ore exploration in the country to build more steel capacity to leverage full potential of ore.

Balochistan has relatively good quality of iron ore. A resource of 50 million tons of magnetite iron has reportedly been established at Chigendik and Pachinkoh in Chagai district. The lease holder is Balochistan Mining Enterprises (BME), which is a joint venture of Balochistan and the federal government and the PPL. BME has been exploring possibilities for upgrading of iron ore through beneficiation process. Last year, BME signed an agreement with a German consultant to carry out engineering studies for setting up a beneficiation plant.

Pakistan Steel Mill (PSM) and Tuwairqi Steel Mill are exploring the possibility of using local iron ore available in Balochistan as input. This will cut down the country's import bill and help in the development of iron ore mining in the area. The PSM is the country's largest and only integrated steel manufacturing plant, with an annual designed production capacity of 1.1 million tones. PSM plans to use coal and iron ore found in Balochistan to save $16 million. It has set a target of meeting 10 percent of its iron ore and coal requirements through local sources.

The PSM has negotiated with Metallurgical Corporation of China (MCC), which is currently extracting copper from Saindak mine in district Chagai and the Pakistan Mineral Development Company. Under the arrangement, the Chinese company will set up a plant from its own resources to extract iron ore from slurry and the supply of iron ore will begin from April 2008. According to an estimate, the PSM will get 50,000 to 60,000 tones of iron ore annually and save up to Rs 120 million. Initially 15,000 tones of iron ore would be acquired after which procedure would be devised for its procurement.

Tuwairqi Steel is a private sector steel project with one million tons production capacity. The project is based on midrex technology and will require 1.92 million tons of iron ore with minimum of 66 per cent ferrous content annually to produce 1.28 million tons steel products based on Directly Reduced Iron (DRI). Tuwairqi Steel is keen to utilize maximum quantity of the indigenous iron ore for its project in Karachi. The project is expected to become operational as the first private sector project of steel mill by the second half of 2008.

Tuwairqi Steel has already negotiated with the BME, which has agreed to supply 350,000 tons of lump concentrate and 50,000 tons of sinter concentrates every year for next 9 to 10 years. Subsequently, 400,000 tons of concentrate can be supplied.

Recently discovered Iron ore deposits at Dilband in Mastung district of Balochistan are considered the country's first ever economically exploitable deposits. According to an estimate, Dilband resource of over 200 million tones of iron ore contains between 30 to 40 per cent iron. It is substantial iron ore deposit, which is bound to play an important role in future industrialization and economic development of the country. It is estimated that while the net value of the deposit is worth more than Rs.10 billion, even 10 per cent blending can save at least Rs.200 million per year in foreign exchange.

Around 5000 tons of iron ore from Dilband were reportedly dispatched to the Pakistan Steel. There was a strong lobby that fiercely resisted use of indigenous iron ore and other inputs as it would slash their commission. The commission Mafia was dominating in the PSM that opposed any move for using indigenous iron ore. Under military administration of General Musharraf, a deal however was finalized between PSM and BME for the sale of indigenous iron ore. Under the deal, the BME agreed to supply 100000 tones per year iron ore to Pakistan Steel. Pakistan Steel successfully blended 10 per cent of raw Dilband ore with the imported ores to produce sinter and pig iron.

Besides PSM, there are 598 manufacturing units in Pakistan iron and steel sector. The sector plays a key role in the provision of raw material for capital formation and economic development in the country. Within manufacturers, the contribution of the PSM was 90 per cent in fiscal year 2003-04, 69 per cent in fiscal 2004-05, and 30 per cent in fiscal year 2005-06. The steel industry has a big role to play in future, as steel structures are fast replacing masonry works including many international airport buildings. The high-intensity steel products are meant for the emerging needs of industries such as aerospace, nuclear power, and oil and gas prospecting. A million-kilowatt-capacity nuclear power unit requires about 2,110 tons of alloy steel, which includes high-temperature alloy, titanium alloy and special stainless steel.

Pakistan Steel should take full advantage of upsurge in the demand by increasing the production to the maximum of the capacity and by taking measures to reduce the cost of production. The cost of production may be reduced substantially by making maximum use of indigenous iron ore. The PSM must prefer the local iron ore products over the foreign raw material for steel products. This will not only open up doors for optimum use of products in public sector but also provide encouragement to private sector steel manufacturers. Iron and steel traders have already urged the government to look into the looming problem of acute shortage of steel products, which may hamper construction activity in the country.