Steelmakers Pay Heavily for Rise in Scrap Price in FY23

SEATTLE (Scrap Monster): Listed steelmakers, mild steel makers, and aluminum makers earned far less in FY23 than in the year before for costlier raw materials.

They rely on scrap imports to run their production, but the dollar crunch came in the way of purchasing raw materials from the international market. Prices of raw materials were high for some time in the overseas markets during the year, and then they fell, but the companies could not take advantage of it due to the restrictions on not-so-necessary imports.

The Federal Reserve price index of iron and steel scrap was as high as 859 in April last year. The index fell to 500 in November 2022 before going up to 670 in March this year.

It tumbled again to 550 in September.

 The taka losing value against the dollar came as another blow for the limited imports, as that drove up production cost. Energy crisis and high utility prices added to the upward cost pressure.

These manufacturers then went to source scrap metal from ship breakers to keep the production on. Scrap steel is a major source of copper, iron and aluminum in the country. But raw materials from the domestic industry were also expensive, as ship-breakers in FY23 raised the iron scrap price from Tk 45,000 per tonne to Tk 70,000 per tonne.

This is the backdrop against which Bangladesh Steel Re-Rolling Mills and BSRM Steels, two companies of the same group controlling nearly 25 to 28 percent of the domestic steel market, have shown a 5-9 percent drop in profit in FY23, compared to FY22.

According to the company, the rising foreign currency conversion rate boosted import cost sharply, which led to a steep increase in the production cost. Moreover, production was hampered by power supply disruption.

The steelmakers supplied to many mega development projects of the government in the year. They could not hike selling prices proportionately with the rising cost in the interest of "economic development of Bangladesh", said Mohammed Reazul Kabir, former chief financial officer and current head of internal audit of Bangladesh Steel Re-Rolling Mills.

"We are one of the major partners in development projects. Had we increased our product prices there would have been a major economic impact."

Steel maker GPH Ispat has declared an 83 per cent year-on-year decline in profit in FY23.

Company secretary Md. Mosharof Hossain said the firm was reliant on imports for more than 95% of raw materials it used.

"We could not import raw materials according to our demand. When we needed 3,000 tonnes of raw materials, we could import only 1,000 tonnes. That increased our production cost.

"As we could not open LCs (letters of credit) in time, we were unable to take advantage of raw material price reduction in the international market."

Another listed steelmaker, Ratanpur Steel Re-Rolling Mills was found closed in a recent visit by an inspection team of the Dhaka Stock Exchange.

It had already been struggling since the outbreak of Covid for both the production and sales plunged overnight.

Iron sheet maker Appollo Ispat Complex Limited has been closed for the last two years.

The company has disclosed its financial burden of approximately Tk 900 crore (including penal interest) and other liabilities amounting to Tk 200 crore.

Two listed aluminum makers also reported a major deviation in earnings results between FY22 and FY23.

Aluminum profile maker BD Thai Aluminium endured a loss of Tk 66 million in FY23, against a profit of Tk 2.56 million in FY22. According to the company, income plummeted as sales volume shrunk.

Chief Financial Officer Ashim Kumar Barua said, "Currently, the demand for our product is low. The government's new Detailed Area Plan (DAP) has been a deterrent to investments by developers. The situation will improve soon."

Another Aluminum composite panel maker Nahee Aluminum showed a 72 percent lower profit in FY23, compared to FY22.

S. S. Steel Limited, manufacturer of mild steel, a ferrous metal made from iron and carbon, reported a 98 per cent plunge in profit in the first nine months of FY23, compared to the same period of the previous fiscal year.

Meanwhile, copper pipe maker Coppertech Industries disclosed a 45 percent year-on-year decrease in profit for the nine months to March this year, compared to FY22.

Courtesy: www.thefinancialexpress.com