Industry leaders think investment in other private sectors needed to make the steel industry's growth sustainable
Although overall imports experienced a slowdown amid a slump in private sector investment in the last fiscal year, the country's steel industry saw a sharp rise in import of raw materials during the same period.
Against a background of a nationwide implementation of megaprojects, this boom in the steel sector prompted investors to expand their businesses, resulting in a rise of raw material imports, according to industry insiders.
However, they are now assailed by worries about the sustainability of this industry.
"People are investing in the steel industry only due to the large number of public infrastructure projects," said Alihussain Akberali, chairman of Bangladesh Steel Re-Rolling Mills (BSRM).
He stated that steel manufacturers have been enhancing their production capacity based on future projects to be implemented by the government. If progress in these projects slows down, the steel industry will be "in deep trouble," he added.
Investment in other private sectors is needed to make the growth of the steel industry sustainable, Alihussain explained.
The import of scrap vessels – the major raw material for finished steel goods – increased by 48.30 percent, in terms of letter of credit (LC) settlements, in the last year.
In the 2016-17 fiscal, the growth in import of raw materials in this industry was 1.65 percent, according to data from Bangladesh Bank.
Overall LC settlements grew by 2.86 percent in the last fiscal year.
Industry insiders point to the fact that the leading steel manufacturers in Bangladesh have moved to expand their businesses in recent times as steel consumption per capita has increased in line with economic development.
Steel consumption almost doubled in the last eight years, standing at over 45kg per capita. The implementation of government projects is expected to add an additional consumption of 15-20kg to this figure in the next few years, according to industry sources.
BSRM, the leading steel manufacturer in Bangladesh, opted for a business expansion by setting up a new melting plant in Mirsarai, Chattogram, in 2016. The plant, with an annual production capacity of 4.3 lakh tonnes of billets, commenced operations in April this year.
GPH Ispat, another top steel manufacturer, went for a massive expansion of its steel plant with an investment of Tk2,500 crores. The plant is expected to go into operation in November, with an annual production capacity of 8.5 lakh tonnes.
"Steel makers are expanding their businesses in anticipation of a high demand from the government sector," said Mohammed Jahangir Alam, chairman of GPH Group.
He said that the growth is still government-led. He notes, though, that as the economy keeps growing, demand for steel will be sustained in the future.
Despite such optimism, however, some steel makers have expressed their concerns. They have said that payments in some government projects are being delayed. If project implementation does not become more efficient, it will put the growing steel industry in big trouble.
Default loans are a big obstacle to private sector investment, which is also a threat for the steel industry, said a steel manufacturer wishing to remain anonymous.
He said that many investors are stuck with default loans. As a result, they could not expand their businesses in the private sector.
Delays in government payments to steel suppliers may create a crisis in the steel industry, he added.