MS rod may become costlier

The price of mild steel (MS) rod may soon cross Tk 1 lakh per tonne as production costs have risen due to a recent hike in fuel and energy prices amid the ongoing US dollar crisis, according to industry people.

"Around 90 per cent of the scrap steel used is imported. So, production costs have grown in line with higher US dollar prices and recent hikes in fuel and energy prices," said Tapan Sengupta, deputy managing director of the BSRM.

As per data from the Trading Corporation of Bangladesh, 60-grade MS rod was selling at Tk 95,500 per tonne in Dhaka yesterday while it was Tk 91,500 for the same amount just one month ago.

The US dollar has gained around 22 per cent in value against the local currency over the past six months. As such, steel makers are having to settle letters of credit (LCs) at Tk 112 per US dollar to import raw materials.

"Around 90 per cent of the scrap steel used is imported. So, production costs have grown in line with higher US dollar prices and recent hikes in fuel and energy prices," said Tapan Sengupta, deputy managing director of the BSRM

Besides, they are facing difficulties in opening LCs, which is hampering business by preventing factories from running at full capacity, he added.

Regarding the recent tariff hike for power and gas used by industries, Sengupta said the production cost of steel making units would increase by a maximum of Tk 1,500 to Tk 3,000 per tonne depending on the factory.

For example, manufacturers using energy from captive power plants will have to spend an additional Tk 3,000 to produce each tonne of steel while it will be Tk 1,500 for those supplied by the national grid.

This is because the Energy and Mineral Resources Division has increased the price of gas used by power plants by 87.50 per cent to Tk 30 from Tk 16 per cubic meter.

Similarly, the price per cubic metre of gas for large industries has been increased by 150.41 per cent to Tk 30 from Tk 11.98.

Manwar Hossain, president of the Bangladesh Steel Manufacturers Association (BSMA) recently wrote to the commerce ministry to inform about these concerns.

"The price hike will double the fuel cost for producing steel. This additional increase in the price of MS rod will result in a loss of consumer purchasing power," he said.

Around 15 per cent of the production cost for making steel goes into paying for fuel and energy. This means that if each tonne of steel costs Tk 80,000 to produce, then the gas and electricity charge accounts for Tk 12,000 of that amount, Hossain added.

At present, the production cost of steel billet stands at Tk 81,300 per tonne with Tk 20,000 being spent on operational expenditure and Tk 2,200 on duty and advance income tax.

Considering the situation, the total production cost will reach Tk 103,560 per tonne in no time.

Hossain went on to say that the steel industry in Bangladesh is suffering as infrastructure development works have slowed down, especially in the private sector.

With this backdrop, the BSMA demanded that their short-term loans be converted into long-term ones so as to prevent losses.

The association also urged the government to instruct banks to facilitate LC opening for importing raw materials and increasing the gas of price gradually rather than all at once.

Md Shahidullah, secretary general of the BSMA, said manufacturers will have to adjust their prices due to the higher production cost.

This will put pressure on consumers and increase the cost of development projects, putting pressure on public expenditure, he added.

Shahidullah then informed sales have already dropped by up to 25 per cent in the last six months.

Shahriar Jahan Rahat, deputy managing director of KSRM, said the jobs of roughly 50 lakh people involved with the steel industry are now in jeopardy thanks to the current situation.