The steel industry in Pakistan is facing an unprecedented crisis, with many mills shuttered and the remaining ones operating at just 20-30pct capacity due to soaring production costs and collapsing demand. Industry leaders warn that without swift government intervention, the sector could collapse, threatening millions of jobs.
The Pakistan Association of Large Steel Producers (PALSP) has criticized the delay in implementing the “wheeling” mechanism, which would allow manufacturers to buy cheaper electricity directly from independent producers. PALSP urges the government to reduce electricity tariffs for the steel sector, noting that its annual demand of 4-6 mln tons could help utilize 4.8 bln units of idle power, boosting capacity and reducing payments to independent power producers (IPPs).
Wajid Bukhari, Secretary General of PALSP, stated, “The steel industry is collapsing under unsustainable policies. Mills are shutting down not due to mismanagement, but because of skyrocketing electricity costs, high borrowing rates, and sharply reduced demand.”
Compounding the crisis are the sharp devaluation of the Pakistani currency and record-high interest rates of 25pct, which have doubled working capital requirements, leaving companies unable to maintain inventories or sustain operations. Although recent interest rate cuts to 15pct provide some relief, manufacturers argue that rates need to fall to single digits for recovery.
Demand for steel has plunged, driven by cuts in the public sector development program (PSDP) and a halt in infrastructure projects that account for 60pct of local steel consumption. Private construction has also slowed, leaving manufacturers with unsold inventory and mounting losses.
The industrial sector’s broader downturn is evident, with large-scale manufacturing contracting by 0.76pct in the first quarter of FY25. Foreign investment has also dropped, with a major Chinese steel producer abandoning plans to expand in Pakistan, citing high energy costs and unsustainable financial conditions.
The crisis has already led to widespread job losses, with thousands of workers laid off. The PALSP is calling for urgent reforms, including subsidized electricity rates and lower interest rates, to save the sector.
