Compass needs calibration?

Prof Dr Shujaat Mubarik

Although the country’s economic voyage witnessed many ups and downs during recent years, there are certain reasons that nudge us into discerning positive aspects and hope for the further growth. Against all odds, Pakistan’s Iron and Steel industry posted a high growth mainly driven by increased public spending on infrastructure projects including roads, bridges, power plants, etc., and surging private construction activity, in recent years.

According to SBP (2017), steel industry is leading the large-scale manufacturing (LSM) sector with growth rate of 16.58 percent from Jul-Mar 2016-17. On the one hand, the spectacular growth of industry is being highly appreciated while the malicious output quality is being considered as a major point of concern, on the other. Presently, the steel industry of Pakistan is using the induction furnace technology to produce the steel and this technology has not only become highly obsolete but is also considered as environmentally devastating.

Further, the quality of steel produced through induction furnace route does not meet the quality standard. Due to this reason China, the largest steel producer, has completely banned the use of Induction furnace for steel production and has shifted its crude steel production either toward blast furnace (BF) technology or electric-arc furnace (EAF). Despite the fact that blast furnace is the dominating production route, since 2007, global steel production, through the electric-arc furnace(EAF) process, has seen a sharp upward trend. According to some observers, the efficiency, feedstock flexibility and environmental advantages of EAFs make investing in them more attractive than other options, especially concerning existing and upcoming Carbon Emission Regulations and growing steel scrap reservoirs.

Furthermore, Electric-arc furnaces are pollution free and have outstanding metallurgical control. This greatly reduces the demand of energy required to make steel when compared to primary steelmaking from blast furnace. That is why it is becoming the first choice for steel making in emerging economies. For example, since 2005, India has become the second largest EAF-based steel producer in the world, after China, and its EAF production exceeds that of the United States. The steel production through EAF route is projected to be 31% by 2025. The quality of the steel produced through EAF route is far better than that of produced by induction furnace.

Presently, 95% of Pakistani steel firms are using the induction furnace processes for production except the Pakistan Steel, in public, and Agha Steel Industries Ltd in private sectors. The steel producing firms in Pakistan are highly reluctant to adopt the Electric Arc Furnace (EAF) technologies as they perceive “cost with no return”.

This reluctance to shift from induction furnace toward blast or electric arc furnaces technologies may pose several challenges to firms in local steel industry. In past, the same has happened to our Cement Industry where a number of factories were closed down due to their inability to adopt new technology, hampering industry growth at least by 2%, according to crude estimates. It resulted in closure of number of those cement factories that did not take proactive measures to adopt new technologies. The case of country’s Textile industry; the reduction of Pakistan’s share in global textile to 1.8% from 2.2% due to the inability to adopt latest technology, is another example of it.

The same scenario can emerge in steel industry if the companies continue to operate with existing induction furnace technology. The existing technology has dire effects and grave environmental issues. Around 10% of the actual local steel production, of 7m tons, meets international quality standards. The rest 90% of the production falls in the category of ‘ungraded, unrecognizable and untraceable material’.

Furthermore, due to inefficient energy consumption, the use of induction furnace technology also raises these firms’ cost of production. Consequently, Pakistan steel production is becoming less competitive in the domestic market. If not tackled, this factor can worsen the situation in coming days when the CPEC-related ventures will be in full swing. Chinese firms involved in the CPEC projects prefer to import steel from their country over buying it from the local market. This can open the way for Chinese Steel industry in Pakistani local market. Owing to the low cost of Chinese steel, Pakistani customers may shift toward them, pushing the local industry into trouble. Therefore, a proactive technological upgradation strategy is the need of the hour to sustain Pakistan’s Steel sector. Putting together, Pakistan steel industry’s impressive pace of growth in production of quantity needs to be coupled with the quality.

It is crucial, at this critical juncture, as we are developing the strategic infrastructure of Pakistan. The use of standard quality steel is important for guaranteed strength of the infrastructure. In the past, compromise on such things has imparted fatal losses in terms of infrastructure and human lives. It is only possible when the existing induction furnace-based technologies are perpetually replaced with latest electric-arc furnace technologies. Let us think, plan and work for a promising future of our industrial and commercial sectors, in general, and steel manufacturing, in particular.

(The writer is Dean, Muhammad Ali Jinnah University Karachi)