CHINA PLANS TO SET UP A STEEL MILL AT KALABAGH

SYED FAZL-E-HAIDER
(feedback@pgeconomist.com)

Apr
11 - 17, 2011

China has shown interest in setting up a steel plant with a one million ton annual capacity in Pakistan. Hong Kong-based Amlong Inc, a Chinese firm, is interested in setting up a steel mill at Kalabagh in district Mianwali in Western Punjab utilizing the potential of locally-available iron ore deposits.

With proven resource of around 350 million tonnes, Kalabagh possesses the country's largest iron deposits. The deal for the proposed steel mill is expected to be finalized by the Chinese company this month (April). Presently, Pakistan Steel Mills (PSM) is the only integrated mill in the country with a capacity of 1.1 million tons per annum, which is based on 100 per cent imported ore. The analysts believe that the proposed Kalabagh steel mill - based on local iron ore reserves-will not only enhance the country's steel production but it will also produce steel cheaper than that presently being produced by PSM due to its imported and expensive iron ore. The proposed steel mill is a necessity, as the country faces acute shortage of steel products for construction activity, while PSM is not in a position to meet the growing requirement of steel in the country. Chinese have also shown interest in four-year project of expanding and revamping the PSM at a cost of $2.2 billion.

Amlong Inc representatives were part of the delegation of 200 businesspersons who accompanied the Chinese Premier Wen Jiabao in December during his visit to Pakistan.

The Amlong officials have been in talks with various government organizations including Ministry of Industries and Production in the past three months.

A two-member Chinese delegation is reportedly scheduled to visit Pakistan this month to discuss legal procedures including lease of mines and land for setting up a steel plant at Kalabagh.

A delegation of Amlong Inc visited Pakistan in January and held meetings with government officials to do the spadework for the steel mill project, which is aimed at producing one million tons of steel annually. Engineering Development Board (EDB) gave a detailed presentation on the iron-ore deposits available in the Kalabagh area. The company officials expressed satisfaction on the iron ore deposits available at Kalabagh, the infrastructure and the proposed site for establishment of the steel mill.

Kalabagh, Chichiali, Makerwal and Kutch areas in district Mianwali are rich in iron ore resources. The iron contents range from 30-35 per cent. The iron ore deposits in Makarwal range are estimated to be around 600 million tons. The analysis of the Kalabagh Iron ore is comparable with the Salzgitter Iron, which is the chief source of iron for the West Germany.

German firms have been showing interest in setting up a steel mill based on Kalabagh iron ore. In 1956, M/S Krupp of Germany had given an offer to set up a steel mill in Kalabagh but the project was shelved due to the non-serious approach of the then concerned ministry and bureaucratic snags.

After eleven years in 1967, another German company M/S Salzgitter offered to set up a steel mill of over 0.8 million tonnes per year capacity based on Kalabagh iron ore. Some European banks had also offered loans for the project, but the project could not proceed and was shelved on the same reasons

In April 2008, a consortium of eight local steel units had offered to develop iron ore deposits of Kalabagh and establish a steel mill of one million tons annual capacity.

Unfortunately, it merely remained an offer and no work on ground was launched till to date.

Loss-making PSM has been submerged in corruption of its management. Critics say that the country has so far failed to establish state-of-the-art mini- steel mills near iron ore deposits, instead of depending only PSM based on imported iron with outdated machinery, which is meeting not more than 25 per cent of annual steel requirements of the country.

China has been showing interest in the development of steel sector of Pakistan, which is endowed with huge iron ore deposits in Punjab and Balochistan. The country has over 780 million tons of iron ore, which contains 35 percent of iron. Balochistan's Dilband iron ore resource of 200 million tones contains between 30 to 40 per cent iron.

China Metallurgical Construction Corporation (MCC) has already given its two-phased plan to Pakistani authorities for the PSM expansion and modernization. MCC plans to set up a new plant capable of producing 2 million tonnes of steel per annum in the first phase at a cost of $1.2 billion, while it plans to revamp and modernize the existing PSM plant in the second phase at a cost of $1 billion.

Located 30km south east of the port city of Karachi, the PSM complex includes coke oven batteries, a sintering plant, last furnaces, steel converters, bloom and slab casters, billet mill, hot and cold rolling mills, galvanizing unit and 165MW of own power generation units, supported by various other ancillary units.

In 2007, Shanghai Baosteel Group Corporation (SBGC), China's steel giant, showed interest in setting up 300, 000 tons cold rolled steel plant in Pakistan.

A resource of 50 million tons of magnetite iron has reportedly been established at Chigendik and Pachinkoh in Chagai district where MCC is engaged in extracting copper from Saindak mine. Under a deal with PSM, the MCC agreed to set up a plant from its own resources to extract iron, which will be purchased by the PSM.

Some analysts urge the government to import plants and machinery from China for the exploration and upgradation of iron ore. The machinery and plants manufactured by China can work in Pakistan, as China iron ore also contains 35 percent iron.

China’s steel output rose by nearly 16 per cent to 489 million tons in 2007, and further output increases will only increase the strain on resources, both at home and abroad. Beijing's efforts to force consolidation in the industry after years of production growth outstripping demand have so far failed - the country shut 37.5 million tons of steel capacity in 2007, short of its target of 55 million tons. The year 2008 proved a bleak year for Chinaís fragmented steel industry, as Iron ore prices jumped by two-thirds while coal supply tightened.