|Local flat steel demand slows due to tighter economic policies
|Pakistan - 2018 December 23
Domestic flat steel demand has started cooling down owing to tighter economic policies and buying power erosion attributable to 32pct Pakistani Rupee/USD depreciation during the last 12 months.
This has been evidenced through production slowdown in downstream sectors. In this regards, automobiles/electronics production growth has fallen to 0.6pct/-2.4pct in four months of FY19 and local cement demand growth also dropped by 0.9pct YoY in 5 months of FY19.
Flat steel earnings are expected to be reminiscent of first quarter FY19's earnings decline at least in near term where we expect FY19F earnings to fall by 12pct YoY owing to pricing pressures, offtake slump, rising interest rates and higher depreciation, said Elixir Research's analyst Sharoon Ahmed.
Local manufacturers have desisted curtailing prices in spite of international slide in flat steel prices as to offset impact of Pakistani Rupee depreciation. This has led to increased pricing pressures from imports particularly in CRC, causing domestic produce to fall rather drastically compared with demand slowdown.
While the overall domestic demand for flat steel is likely to have stood relatively flat in 4 months of FY19, however sales for domestic produce is expected to have taken an even harder hit as reflected by 43pct YoY decline in Cold Rolled Coil (CRC) dispatches of Aisha Steel (ASL) during 1QFY19.
Though International Steels (ISL) has stopped reporting its quarterly offtake, we expect it to have fallen by 18pct YoY. The cushion was likely provided by demand from its parent company International Industries (INIL) (estimated to be 20pct of total sales) and diverse product offering including Galvanized Coil (GC). With regards to significant drop in CRC offtake, this is likely attributable to increased pricing pressures as prices of locally produced CRC is USD9/ton higher than landed price of imports as buyers shifted towards cheaper alternative, added Ahmed.