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Steel Re-rolling Industry of Bangladesh: Growth and Future Prospects

An important factor in determining a country’s development is the growth of its steel production and consumption. Bangladesh’s steel and re-rolling industry has played a vital role in developing the overall infrastructure of the country. In addition, for years the steel industry has been supporting other industries like transportation, energy, heavy engineering and construction by supplying necessary steel products such as reber, angles and beams. In the last few years, the country’s local steel market has grown by 15 to 20 percent, which has a current market size of BDT 45,000 crore. Besides, Bangladesh is currently producing semi finished steel – ‘billet’, as a result, steel products are being exported abroad after meeting the local demand.

Overview of Steel Re-rolling Industry

The journey of Bangladesh’s steel industry began in 1952 with the establishment of ‘Bangladesh Steel Re-Rolling Mills’ (BSRM) at Nasirabad, Chittagong. After Independence, there were a few steel mills in the country. In 1984, KSRM, a Concern of Kabir Group of Industries, started their operations in Bangladesh with Modern Machineries, and established an Automated Rolling Mill. In the year 1993, another prominent steel manufacturing company Abul Khair Steel, started its operations in the country. Meanwhile, after 1990, as the construction work in Bangladesh continued to grow rapidly, the demand for steel also increased at the same rate, resulting in the establishment of several large steel mills in the country.

According to IDLC, there are about 400 steel mills in the country with a total production capacity of about 9 million metric tons, of which the country consumes more than 7 million metric tons of steel.

There are 400 steel mills in the country total a total production capacity of 9 million metric tons which requires 7 million metric tons of steel.

At present, Abul Khair Steel is leading the industry with a production capacity of 1.4 million metric tons, while BSRM, KSRM, GPH Steel and Anwar Steel are among others producing steel at significant rates.

In terms of market share, the top three steel producers – Abul Khair Steel, BSRM and KSRM – are meeting 50 per cent of the demands in the local market. At present around 1 million people are directly or indirectly employed in this sector. Based on shape, the steel industry can be divided into three categories: TMT bars, flat steel and stainless steel.

There are three categories of steel: TMT bars, flat steel, and stainless steel.

TMT bars are highly strong, and these reinforcement bars are the most popular in the construction industry due to their low erosion. As a result, only TMT bars are used in construction work in most of the developing countries around the world. However, in Bangladesh, these TMT bars are most commonly used in strong concrete structures, bridges and flyovers, dams, thermal and hydel power plants, industrial structures, and high-rise buildings. In addition, flat steels are mainly used in the automotive industries, home appliances, shipbuilding, and construction sectors. On the other hand, stainless steel is used in other sectors including general construction, kitchen accessories, and medical equipment.

There were 60 percent of steel used in Bangladesh’s public sector, 25 percent of steel used in households, and 15 percent used in commercial construction. Demand for steel in Bangladesh is growing rapidly. Even a decade ago, the demand was 1.6 million metric tons, but it reached 7 million tons in 2018, and is expected to rise to 18 million tons by 2030.

Of the total steel produced, 60% is used in the public sector, 25% is used for households, and 15% is used for commercial construction.

At present, although the steel production capacity is expected to increase, it has been severely hampered by the Corona epidemic. In an interview with The Daily Star, Monwar Hossain, president of the Bangladesh Steel Mills Owners Association, quoted, “The total loss to steelmakers due to the Corona epidemic in 2020 was 5957.61 crore taka.” Nevertheless, since the situation has slowly normalized, the steel mills have begun turning around again.

Branding

At present almost all the steel manufacturing companies are emphasizing and focusing on their branding and promotion. However, even a decade ago TVC or print promotion of any of these companies were rarely seen. It was BSRM, one of the leading companies in the steel industry, who was the first to run their promotional camps in various electronic and print media. Later on, other companies gradually started bringing forth their promotions. 

Consumer Awareness

At present while purchasing steel products customers are more aware than ever before. Earlier, consumers used to buy any rod or steel available in the market for their needs. However, now consumers are more concerned about the type of steel and the grade of rod in such product purchases. As a result, consumers are buying the right grade of products needed to build any type of infrastructure.

Export of Steel Product

Steel is now being produced on a large scale for use in almost all types of infrastructural development in the country. At present these steels are being exported abroad after meeting the demand of the country. From 2016-17 to 2020-21, Bangladesh’s steel exports have increased at a rate of 22.73% per annum.

From 2016-17 to 2020-21, Bangladesh’s steel exports have increased at a rate of 22.73% per annum.

Capacity Increase and Foreign Investment

In recent years, realizing the export potential of steel, the steel producing companies of Bangladesh have increased their production capacity based on the market demand. According to a 2018 quote from The Daily Star, BSRM, Anwar Steel, AKS, GPH, KSRM, and Bashundhara Steel have increased their capacity in recent years. PHP has also invested BDT 1,500 crore in a new unit in Feni and will set up a combined steel factory on 500 acres of land at a cost of BDT 31,600 crore in Mirsarai Economic Zone in the next five to seven years. To meet the growing market demand, BSRM has decided to set up a new plant at a cost of BDT 703 crore to increase the annual MS rod production capacity to 500,000 metric tonnes by 2020. The new production unit is expected to be launched by mid-2023. Meanwhile, realizing the future growth of Bangladesh’s steel industry, many foreign investors are keen to invest in this sector. Chinese steel giant Kunming Iron and Steel Holding Company (KISC) has signed two MoUs with the Bangladesh Economic Zone Authority (BEZA) to invest BDT 19,818 crore in Mirsarai’s steel production project in 2018. Such foreign investment could be a major factor in the future growth of Bangladesh’s steel industry.

To meet the growing demand, BSRM has set up a plant at a cost of BDT 703 crore to increase the annual MS rod production.

Growth Factors

Integration with Megaprojects

According to a source in The Daily Star, with the passing of the bill of Padma Bridge by ‘ECNEC’ in 2007, the implementation of mega projects in the country began in 2014. The present government has undertaken hundreds of projects to transform Bangladesh into a developing country by 2041 and to implement the Delta Plan of 2100. In addition, with a total of 100 economic zones across the country, the country’s infrastructure development has created huge demand for steel in ongoing mega projects in several sectors including communications, energy, trade and housing. According to the Secretary General of Bangladesh Steel Manufacturers’ Association, demand for steel in mega projects like Padma Bridge and Rooppur Nuclear Power Plant is being met entirely from locally produced steel, and steel is being exported at the same time. Besides, the sector is being further expanded only to meet the domestic demand. According to Manwar Hossain, MD of Anwar Group of Industries, the growth of steel industry in Bangladesh will continue for the next 20 to 25 years.

Increase in Purchasing Power

Along with the growing GDP of Bangladesh, the purchasing power of the common citizens are increasing. As a result, people are building more housing than ever before, with plenty of steel and rods being used. According to tbs news, the per capita steel-rod consumption in 2012 was 25 kg, which increased to 45 kg in January 2020 , and is expected to reach 75 kg by 2022. Steel rolling mills have also expanded their business to meet this rising demand.

Steel-rod consumption in 2012 was 25 kg, which increased to 45 kg in 2020, and is expected to reach 75 kg by 2022.

Challenges

Inadequate Raw Materials

Raw materials used in steel production in Bangladesh still have to be imported. The players in the shipbreaking industry currently operating in the country are not yet able to supply sufficient quantities of raw materials required by the steel industry. As a result, importing these essential raw materials is a very useful and time consuming task which is quite challenging. According to The Daily Star, about 100 steel re-rolling mills in the country were shut down in 2006 and 2007 due to shortages and high prices of raw materials. As a result, thousands of people working in the sector have lost their jobs.

About 100 steel re-rolling mills were shut down in 2006 and 2007 due to shortages and high prices of raw materials.

Inefficient Estimations of Projects

If a mega project runs smoothly according to the proposed timeline, then the steel mills benefit due to working capital projection and fair consumption of the product. However, it is often observed that a project does not run according to the proposed timeline and project work is delayed, which ultimately affects the projected production and profitability of steel mills.

Changes in Policies and Regulations

Various policies of the Government of Bangladesh often undergo unexpected changes in terms of Customs Law, Income Tax, Value Added Tax, and other regulatory bodies. In addition, setting up a steel re-rolling factory is highly capital dependent, so in most cases, a bank loan is required to set up a new factory. But due to interest rate fluctuations, the companies taking loans face various difficulties like “interest rate risk”. The volatility of such policies, and the fact that steel producers are directly involved in these policies, has a negative impact on the growth of the industry.

In most cases, a bank loan is required to set up a new steel re-rolling factory in the country.

Opportunities 

Discovery of Iron Ore Reserve in Dinajpur

As there is no source of iron ore in Bangladesh, almost all the scrap steel required for steel production has to be imported. However, the search for a new iron ore source in Dinajpur is opening up new possibilities that could supply iron ore for the next 30 years. This will save a huge cost of scrap steel import in Bangladesh and will also allow steel mills to grow more.

The Upcoming Development of Port Facilities

Due to inadequate port facilities in Bangladesh, large scrap ships are unable to enter Chittagong and Mongla ports. However, the Bangladesh government has confirmed that they will build new ports such as ‘Mirsarai Ocean-Front Economic Zone’ and ‘Payra Sea Port’, as well as renovate existing ports. Once these proposed ports are complete, steel manufacturers will be able to import scrap more easily. Which will speed up their production.

Suggestions

To develop the steel industry of Bangladesh, it is necessary to increase domestic production and the purchase of capital goods. Moreover, there is a significant shortage of R&D in the steel sector of Bangladesh, which, if addressed, is likely to further increase the growth. It is also possible to increase the overall steel productivity of the country, by utilizing the development of efficient labor. In addition, ensuring the safety and welfare of the steel industry’s labor force is equally important.

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