Karachi:
After years of moderate activities and margin pressures, Pakistan’s long -term steel sector is expected to organize a gradual recovery of FY26 onwards, driven by government aid measures, federal infrastructure spending, lower raw material duties and, to some extent, the demand directed by reconstruction following the devastating floods.
However, this recovery is not directed by export or promoted by efficiency. Instead of improving competitiveness in global markets, it can add pressure to the country’s external account, since greater internal demand for long steel inevitably will increase imports of raw materials, such as steel scrap and semi-fining products, as happened around 2015.
In recent years, the long -term steel industry has remained under tension due to the weak demand, high financing and energy costs, and winds against macroeconomic. The performance of the sector in the Pakistan bag (PSX) has also delayed broader indices. However, Taurus securities analysts now see signs of a change, citing policy incentives, better construction and rationalization perspectives.
The federal budget for fiscal year 2016 has provided significant relief for long -term steel manufacturers. Customs tasks have been reduced on key inputs such as steel scrap and semi-finished products. The additional customs tax in the steel scrap has been reduced from 2% to 0%, while the scrap melting duty has been reduced from 3% to 0%. In addition, Customs duty in semi-flushed products such as Billlets has been reduced by half from 11% to 5%, which makes the bars conversion more profitable.
In addition, the Government has announced a margin subsidy of RS5 billion to stimulate construction, together with tax credits on mortgage payments and incentives for low -cost housing projects. Such measures are expected to promote the demand for housing, particularly among the middle class, which now includes around 50-60% of the population. At the same time, the Government has imposed the Sales Tax on the Fata/Pata regions, ending exemptions that the undocumented players previously exploited. The sales tax will gradually increase from 10% in fiscal year 200 to 16% in fiscal year 200, creating a more leveling playing field for documented suppliers.
It is anticipated that recent floods in Punjab and Sindh create a substantial demand for construction materials. Unlike FY23, when the reconstruction after the flood was not translated into higher cement and steel volumes due to poor economic conditions, analysts expect current macroeconomic stability and fiscal support allowing a stronger response, according to a report prepared by Mustafa Mustansir and Asad Qureshi in Taurus Securities. The allocation of the National Public Sector Development Program (PSDP) for FY26 has been established in RS4.2 billion, with significant resources for infrastructure projects. Analysts believe that this, together with the rehabilitation work in the areas affected by floods, will increase the demand for long -term steel products, especially reinforcement bars.
Since fiscal year 2017, Pakistan has maintained high anti -dumping tariffs in finished steel imports, such as reinforcement and cable bars. Effective protection rates increased to 123% in fiscal year 2015, protecting national players but damaged exports. According to the new national tariff policy, the Government plans to rationalize duties in the next five years, reducing the effective protection rate to 50-60%. This change is intended to promote export competitiveness instead of import substitution, aligning with the widest growth objective led by exports.
Among the companies that are, Mughal Iron & Steel (Mughal) stands out with a positive perspective. The company will benefit from budget tax relief, marking subsidies and the demand for flood reconstruction, particularly in Punjab. The Captive Hybrid Plant of 36.5MW in Mughal is also scheduled for the implementation in 2qfy26, which will reduce energy costs by almost 20% and supports the margins. On the other hand, Amreli Steels Ltd (ASTL) faces material uncertainty due to weak demand, loan pact violations and the suspension of the site factory operations, which represents 30% of the capacity. The company is negotiating a debt restructuring plan and exploring assets sales to prop up liquidity.
Agha Steel Industries (AGHA) is also recovering from the violations of the financial pact after a fire incident in 2023. Management is negotiating a restructuring agreement with the lenders, which would unlock RS385 million in insurance claims. With the restored production and the funds injected by the sponsors, Agha awaits progress in his mi.DA project, which could support long -term growth.
