Delays in LCs could result in shortage, increase in steel cost in country

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Islamabad-The steel industry fears shortage of steel in the country coupled with an increase in the cost of steel as the industry is facing acute difficulties in import of raw material due to problems being faced in opening up of the LCs.

Pakistan Association of Large Steel Producers (PALSP) demands govt to take urgent measures for addressing the issue of delay in opening of LCs for steel imports. There is a dollar crisis in the banks over the country. The importers are unable to open letters of credit (LC) due to lack of dollar and are not able to import goods from different destinations. Banks are also hesitant to open LCs for the import of raw materials and delay in LC opening and approvals from SBP are also witnessed. The production activities are badly suffering due to delay in opening of LCs and at the same time, long queues of importers are seen to get permission to open LCs while banks are facing a low inflow of dollars. 

During the first 4 months of the current year, Pakistan’s scrap imports have decreased by 40.58 percent. In the current financial year (July 22 to Oct 22) in comparison to the previous financial year (July 21 to Oct 21) the quantity of scrap imports were 890,783MT in CFY (July 22 to Oct 22) in comparison to 1,252,242MT in PFY (July 21 to Oct 21). Steel manufacturers are now facing serious supply constraints and fear that there is likelihood that they might not be unable to meet the expected increased demand of steel as soon the construction/rehabilitation activity picks up in the flood affected areas. The steel industry fears that if this issue is not addressed forthwith, it will be disastrous and will lead to further escalation in prices of steel and which could rise to the tune of PKR 230,000/PT to PKR 240,000/MT.

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The ongoing situation has created serious problems for the industry due to the shortage of raw material for their manufacturing activities. Due to non-release of import documents and consequent non-availability of raw material, many steel mills are on the verge of closure. Some have already cut their productions drastically. The steel industry heavily relies on imported raw material. So, the curbs on the opening of letters of credit (LCs) have significantly affected the production activities. Due to delays by SBP in LC’s approval, continuous rupee depreciation, and uncertainty in market the manufacturers are facing disruptions in industrial production, unbearable demurrages and container charges, loss-making delays in fulfillment of orders. All of this will result in inflationary pressures in the domestic markets and further discouraging investor sentiment.  The PALSP urge the SBP governor and Minister for Finance to help the troubled industry by ensuring timely opening of LCs.

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