Steel Industry Overview 2020

The economy of Bangladesh is a developing market economy. It’s the 35th largest in the world in nominal terms and 29th largest by purchasing power parity. It is classified among the next eleven emerging market middle-income economies and a frontier market. In the first quarter of 2019, Bangladesh was the world’s seventh fastest-growing economy with a rate of 7.3% real GDP annual growth. In the past few years, inflation has been relatively stable within the 5-6 percent range. Growth is expected to remain strong at around 8.0 percent in FY 2019-20, led by private consumption and investment. Inflation is expected to remain below 6.0 percent. Despite robust economic growth, non-performing loans remain high, particularly in state-owned commercial banks. Financial sector regulation and supervision need to be further strengthened to improve the health of the banking sector, and the role of the state-owned banks needs to be reassessed. To provide alternative sources of long-term investment financing, improving the business environment, and developing a well-functioning domestic capital market is a medium-term priority. Large projects, increasing urbanization, rising living standards, and stronger purchasing power have all driven growth in the steel industry.

Bangladesh is one of Asia’s strongest emerging steel markets and with a growing need for raw materials and manufacturing technologies. According to the International Monetary Fund (‘IMF’), global economic growth is expected to decline to 3.3% in 2019. But improved momentum for emerging markets and developing economies is projected to continue up to 2020. The outlook for South Asia remains broadly positive. Output growth of Bangladesh accelerated to 7.9 percent in FY 2018-19 from 7.3 percent in FY 2017-18, supported by strong private consumption. With the implementation of several mega projects, Bangladesh is on the way to fast-track of infrastructural development. The steel sector will grow further riding on Bangladesh’s dense population, increasing urbanization, rising living standards, strong purchasing power, enhancing life expectancy rate, rapid construction of economic zones and large investments in infrastructure development have all driven growth in the construction section and steel sector as well. Steel is the basic raw material for infrastructural development and multiple other uses. Fortunately, the country has a proud heritage for the art of steel making and shaping for a long time.

BANGLADESH STEEL INDUSTRY IS SELF-RELIANT, HAVING SUFFICIENT CAPACITIES TO FEED THE DOMESTIC DEMAND

There is no exact year-to-year available data regarding the production and market share of the steel industry of Bangladesh. However, in terms of production capacity for both finished and semi-finished (billet) steels Bangladesh is now self-sufficient. According to the industry players, Bangladesh‘s combined annual installed capacity of producing steel in 2018 was around 8.00 to 8.5 million MT and the country has consumed 7.5 million MT steels which were only 1.6 million MT a decade ago. The installed capacity of producing steel will cross 9 million MT by the end of 2019 and the production capacity to increase by another 3-4 million MT in the next few years after completion of various ongoing and planned capacity expansion projects by various industry players. It is expected that by 2030, steel consumption will reach 18 million Tons.

The country’s annual installed capacity for various long steel products like Rod, Angle, Channel, Bar, etc. is around 8.0 million MT, and annual demand for long steel 5.5 million MT. Besides, within the flat steel products, the country’s present installed capacity is 1 million MT for cold-rolled steel and 4.0 million MT for color-coated sheets.

Even though industry capacity is higher than the domestic demand, the industry is expected to seasonality. Sales remain sluggish during the rainy season and higher in the winter season. So, actual production remains lower in the dull season. On average 70-75% capacity utilization is termed as optimal by the industry players. The market size of steel is around BDT 450 billion.

The local steel market grew at a rate of 15% to 20% in the last two years from 8% to 10% per year previously. Growth was higher in the last two years mainly due to faster ADP implementation initiatives taken by the government prior to the Bangladesh National Election held at the end of December 2018.

THOUGH INDUSTRY IS DOMINATED BY FEW LARGE PLAYERS, SMALL PLAYERS ARE REGAINING THE POSITION WITH FRESH INVESTMENT

The steel industry in Bangladesh is turning into a perfectly competitive market from the previous oligopolistic one. Even though three big steelmakers BSRM, Abul Khair Steel(AKs), and KSRM had long been controlling more than 50% of the market, their dominance is shrinking over the last few years as small players growing aggressively. Currently, there are 52 manufacturers that produce at least 10,000 MT Rod per year and these films jointly account for almost 92% of the total production of long steel. To meet the burgeoning demand for construction materials mostly driven by mega government projects, local firms went for boosting steel production capacities by investing heavily in steel manufacturing projects.

Abul Khair group is the largest steel producer in the country in terms of both revenues as well as capacity. Abul Khair Steel’s re-rolling mill (AKS) is capable of producing 1.4 million metric tons high quality graded hot-rolled steel (TMT) rebar per annum. The company’s capacity utilization is ratio is roughly 80% AKS has a special reputation for a price adjustment to avail larger market share and other companies do the same accordingly to maintain the competitiveness.

BSRM Group is the pioneer in the steel industry of Bangladesh and currently the second largest in the market with a 1.24 million MT installed capacity of MS rod bar annually.

The group has a good track record for producing quality steel and strong market penetration.

To cater to the growing demand in the coming days, KSRM has also increased its capacity from 0.45 million MT to 0.8 million MT recently. Another industry player, GPH Ispat has just its production capacity by more than 6 times.it has invested in a massive expansion project of its re-rolling mill to increase its capacity from 0.12 million MT to 0.76 million MT per year which has commenced its product from November 2019. Currently, there are 9 CI sheet (flat Steel) manufacturers in Bangladesh. Among them, AKS (Abul Khair Steel Mills), PHP Steels Mills, KY Steel Mills (KDS Group), S. Alam Cold Rolled Steels Ltd, Apollo Ispat, Galco steels, and TK Steel Mills are the top players in flat steels manufacturers. Most of the market players are Chittagong-based. PHP Family is now envisioning setting up the Country’s first Integrated steel plat (blast furnace basic oxygen furnace plat) to produce both Semi-Finished and Finished Steel in the form of Flat and Long Products from Iron Ore.

Though earlier it appeared that small players will lose their businesses due to business expansion by big players and high input cost, the situation has changed a bit. The present scenario in the steel sector is kind of ‘Grow or Die. A number of small millers including some Dhaka & Narayangonj based steel products traders are also setting up new plants to capitalize on the high growth potential of the industry and also to secure a market presence. Small millers are mostly targeting the retail segment of the market, individual home builders, and real–estate segment while large players are eying towards mega government projects. This leads to a future danger for the large millers as once government projects will slow down, large millers are likely to lose major market share.

LOWER PER CAPITA CONSUMPTION COMPARED TO GLOBAL STANDARD INDICATES HUGE INDUSTRY PROSPECT

While the country has been experiencing one of the fastest economic growth in the world, its per capita consumption of steel is significantly lower than the global standard.

Bangladesh is one of the lowest consumers of steel products in the world. According to the World Steel Association (WSA), the average per capita steel consumption in the world was 245.5 kg in 2019 while that of Bangladesh was only around 45 KG during the same year & the year 2019 per capita consumption is 48 KG. 2019 Per capita consumption of finished steel in Bangladesh (48) was even lower than the regional peer Myanmar (50), India (75), Sri Lanka (53.5), etc. according to WSA data 2019. Lower per capita consumption indicates that the industry has plenty of room to grow more. Bangladesh’s per capita steel consumption witnessed an 8.2% CAGR in the last eight years and may reach 65-70 kg by 2020 and around 70-75 kg by 2024.

The sector is expected to grow further driven by the increasing purchasing power and ongoing infrastructural developments by both public and private sectors of the country.

STEEL INDUSTRY IN BANGLADESH CAPITAL MARKET

Company Overview

 Bangladesh Steel Re-rolling Mills Limited (BSRMLTD)

Bangladesh steel Re-Rolling Mills Limited is the first fully automatic rerolling mills built in the country. BSRMLTD produces a low carbon wieldable quality high strength & high duplicity concrete reinforcing Bar. The Company was incorporated in 1960 & commenced commercial operation in 1961. The Company mainly produces MS products like 60 grade & 40 grade MS bars, angles, channels, I-beam, Great beam, etc. & MS billet. BSRMLTD is now operating with two different units: 1) Re-Rolling unit for M.S Road, channel, Angel & 2) Steel Melting Works unit for production of M.S Billet. Currently, the annual installed capacity of BSRMLTD is 750,000 MT for the Re-Rolling unit & Melting Unit. The company became listed with DSE & CSE on 27th April 2015. The company produced 683,870 MT in FY (16-17). Sale is 676,749MT & utilization is 101%.

 BSRM Steels Limited (BSRMSTEEL)

Bangladesh steel Limited was incorporated in 2002 & commenced commercial operation in 2008. The company mainly engaged in the production and supply of “Xtreme 500W” deformed bars of reinforced steel. The product portfolio of BSRM Steels Limited comprises Xtreme-500W, D-Bar Grade-60, Dbar GR300, D-Bar Grade-75, and mills rolls, etc. The company’s flagship product ‘Xtreme500W contributed 93.7% of the revenue. The present installed capacity is 700,000 MT. & capital utilization is 99.36%. Expansion of billet production plant under this company with a capacity of 4,30,000 MT. This will protect the company from volatile billet prices.

Ratanpur Steel Re-Rolling Mills Limited(RSRM)

Ratanpur Steel Re-Rolling Mills Limited was incorporated on 22nd April 1986 & commenced its commercial production on 1st July 1986. The company is engaged in manufacturing & selling various grades of M.S Deformed Bar (500W/TMT,400W, and 300W) from MS Billet. The company’s present production capacity is 187,200 MT and it utilized 73.0% of its production capacity & produced 136,664 MT of MS deformed bar.

 GPH Ispat limited

GPH Ispat Limited is an integrated steel manufacturing company in Bangladesh that engaged in the manufacturing of 1) MS Billets (100 mm square), 2) Structural Bar (Deformed TMT bar, Deformed bar, etc.). It was incorporated as a Private Limited Company on May 17, 2006, commenced its commercial production on 21st August 2008 & got listed to DSE & CSE in 2002.

S. Steel Limited

S. S. Steel Limited (SSSTEEL) is engaged in manufacturing and selling 500W MS-Deformed Rod, MS-Ingot, Billet, steel for the reinforcement of concrete (Ribbed Bar). They have two different plants namely steel & rolling plant. Billets & ingots are produced in the steel plant and MS Bar Rods are produced in the rolling plant. SSSTEEL has three induction furnaces, one continuous casting machine (CCM) used for the production of MS-billets, and one re-heating furnace & one auto re-rolling mill for producing MS-BAR rods. The corporate office of this company is located at Pragati Sarani, Dhaka and the factory is in Tongi Industrial Area, Gazipur.

Apollo Ispat Limited

Apollo is the pioneer in the CI sheet business in Bangladesh. It started its journey by establishing a modern & sophisticated Continuous Galvanizing Line (CGL). Apollo Ispat Complex Limited was incorporated on December 31, 1994, as a Private Limited Company & it started its commercial production in July 1997. The company is engaged in manufacturing and selling CI (Corrugated Iron) Sheets of different thickness ranging from 0.120mm to .420mm. Annual production capacity of cold rolls manufacturing (CRM) unit is 120,000 MT & production capacity of continuous Galvanizing line, unit-1 & unit-2 is consecutively 60,000 MT & 80,000 MT. The company’s production capacity will increase by another 60,000 MT with the introduction of the world’s best technology of Radiant Tube furnace.

Dominate Steel Building Ltd

Dominate Steel Building Ltd. was incorporated with the Register of Joint Stock Companies and Firms on March 08, 2007, and has been converted into Public Limited Companies on August 20, 2018, under the Companies Act,1994. The main activities of the company are to manufacture various Pre-Engineered Steel Buildings Engineered Steel Building Structure according to the designs and provide full pledge architectural and consultancy services and marketing of the Pre-Engineered Steel Building. The company has a strong reputation for providing a  wide range of building and local materials.

As of November 30, 2020, BSRMSTEEL has the highest sponsor holding while 17.07% of shares of the BSRMLTD are held by the foreign shareholders it is to be mentionable that foreign holding of the company represents shares held by the foreign relatives of the company’s sponsor/directors. Institutional holding is high for Domingo followed by SALACRST & APOLLOISPAT.

Analysis on Listed Steel Producing Company

• Among the listed steel manufactures, BSRMGROUP has the highest production capacity. However, the other three two companies are also undergoing major expansion projects to increase their production capacity.
• As per the latest available financial statements of all eight companies, the Gross profit margin was higher for Dominage (29.74%) reflecting the company as price leader in relation to production costs. SSSTEEL at (17.5%)& APOLLO (18.50%) hold second and third positions among the companies accordingly.
• Sales Growth is positive for SALAMCRST & SSSTEEL as per the latest financial performance. Also, in the case of operating profit SALMCRST has a positive & the highest figure.
• Except for SALAMCRST, APOLOISPAT & DOMINAGE all the other five companies have significant interest-bearing debt in their capital structure which denotes reaping benefits of tax shield at higher default risk.
• BSRMSTEEL & BSRMLTD has a significant market value in comparison to other companies which is in line with the size of the business and prospective fundamentals of the companies.

Coronavirus Effect on Bangladesh’s Steel Industry

The steel of Bangladesh has contributed immensely to the country’s overall infrastructure development by providing long steel products such as rebar, angel, beam, and channel. Demand for long steel has increased sharply in recent years-currently 7.5 million MT o rebar which was merely 2.5 million Mt in a decade ago. Per capita consumption of steel stands as 48 kg which was only 25 kg in 2012—per capita, steel consumption is expected to be 73 kg by 2022.

Despite recording rapid growth for decades, Bangladesh’s steel sector now faces a serious threat due to the coronavirus pandemic which has caused almost a quarter of a million deaths across the globe. The country has also seen a surge in the number of cases and deaths since the announcement of the first case on 08 March.

The steel industry is set to lose Tk 4,000 crore as the COVID-19 outbreak has disrupted production due to factory closures and import of raw materials which are mainly sourced from Russia, India, the USA, and Canada

A prolonged lockdown in these countries could cause serious damage to the supply of china as more than 90% of ye raw materials (steel scraps) are still imported. Most of the rolling mills will be forced to shut down due to a shortage of raw materials despite having domestic shipbreaking yards which also provide melting scrap but not enough.

Prospects and Challenges of Bangladesh’s steel industry

Despite the coronavirus outbreak, Bangladesh’s steel industry has huge potential given the implementation of mega infrastructure projects such as Padma Bridge, Metro Rail, Rooppur Nuclear Power Plant, and construction of a number of economic zones. Private sector and household users will also consume a significant quantity of steel once this global is over.

Currently, the port facility in Bangladesh is inadequate and for that scrap carrying big vessels cannot enter the Chittagong and Mongla Port. However, the government has plans to develop existing ports while building new ports-proposed Mirershoriai Ocean Front Economic Zone and Payra Port for instance. Once these proposed ports are built, steel manufactures will be able to bring scrap easily which would enable them to produce products faster than now.

On the contrary, local steelmakers largely depend on the international market for the raw materials needs, and these companies are now exposed to shocking disruption in global trade due to the Covid-19 crisis. If there is a shortage or price hike of raw materials, then production cost will increase which could affect the profit margin that is already sourced.

At present, there are no Anti-dumping Tariffs for the steel industry in Bangladesh. However, local manufacturers are protected by a high import tariffs policy. Some of the local manufacturers often influence relevant officials to make high tariffs on finished products so that imported products remain expensive.

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