Construction slump pushes steel industry into deep crisis

Bangladesh's mild steel (MS) rod industry is experiencing its worst downturn in decades, hit by a collapse in public and private construction activity, weak demand, high interest rates, and rising operational costs.

Prices have been persistently falling over the last year, with manufacturers saying they are being forced to sell at a loss just to survive and to meet loan instalments.

According to the Trading Corporation of Bangladesh (TCB), 60-grade MS rod was retailing at Tk 83,500-Tk 86,000 per tonne at the end of September, down from Tk 85,000-Tk 89,000 in early August, and a peak of nearly Tk 1 lakh in mid-2024.

Millers are wholesaling at Tk 78,000-Tk 82,000, while domestic consumption has sharply declined by around 60 percent.

"ONE OF THE WORST-EVER CRISES"

Once driven by mega infrastructure projects and a booming real estate market, the MS rod industry was on its way to becoming an economic powerhouse. These days, manufacturers say they are having to sell below production cost just to meet bank obligations and avoid default.

"Bangladesh's steel industry is facing one of its worst-ever crises," said Md Shahidullah, managing director of Metrocem Steel, told The Daily Star yesterday.

He noted that product prices have been dropping despite raw material costs in the international market remaining unchanged. "We are importing at the same cost as before, but now we're forced to sell at a loss. The math just doesn't work."

Industry insiders say the main reason remains a steep fall in infrastructure projects.

Government data shows public development spending has reached its lowest execution in at least 16 years, with just Tk 5,715 crore spent in July-August, equivalent to 2.36 percent of the allocation for the fiscal year. Prior to this, the last fiscal year 2024-25 marked the weakest performance in 49 years.

The slump came as the interim government put a halt to many mega projects taken under the previous administration, and average project approval has also declined.

Shahidullah estimates current rod production costs at Tk 88,000-Tk 90,000 per tonne, leaving mills to absorb Tk 4,000-Tk 8,000 losses per tonne to maintain cash flow and meet loan obligations.

"If we don't sell, we default. That would trigger blacklisting by the Credit Information Bureau and loan classification," he stated, adding that the industry's biggest challenge is financial cost. "Bank interest rates are sky-high."

40% FALL IN PRODUCTION

Shahidullah claimed that of a total of 40 steel factories, some have shut down, while only 14–15 mills are running at limited capacity. Production has dropped by around 40 percent. "There's no new investment, no expansion, only survival now."

Pre- and post-election uncertainty, coupled with investor hesitation due to unclear government policies, has further aggravated the situation, he pointed out.

Contractors tied to stalled government and mega infrastructure projects have left large amounts of accounts receivable blocked, worsening cash flow. "We already sold them steel on credit. That's a huge amount of capital now stuck."

"Unless there's immediate policy support or a market recovery," Shahidullah warned, "more factories will shut down."

Additionally, steel producers often sell on credit to distributors in rural or semi-urban areas. But with demand so low, cash flow is drying up.

"It's not just about falling prices," said Salehin Musfique Sadaf, director of Strategy & Transformation at GPH Ispat Ltd. "We're incurring substantial losses just to stay operational."

Even if raw materials cost the same as before, local operational spending has become burdensome. "Gas prices have increased twice, electricity costs are rising, and we've had to raise salaries to retain skilled workers."

He said his company's production costs now range between Tk 86,000 and Tk 90,000 per tonne, but mills are selling at around Tk 82,000, resulting in Tk 4,000-Tk 8,000 losses per tonne, not including interest rates of 13-14 percent.

"We're essentially operating just to service bank loans. It's unsustainable," Sadaf said.

A 5 percent Advance Income Tax (AIT) on scrap imports adds further strain, with limited scope for refunds, he added.

But the core of the problem remains low public project spending, compounded by political uncertainty.

According to Sadaf, demand for MS rod has dropped by 40-45 percent, mainly due to stalled public projects, the real estate slowdown, and political uncertainty. "The industry hasn't recovered since Covid-19. We urgently need policy support to survive."

Anup Kumar Sarker, senior executive director (Marketing) at Concord, one of the most prominent real estate firms in the country, said real estate is suffering in the current circumstances.

He said the entire real estate industry is under strain, with a clear link between declining sales and stalled projects, and this in turn is affecting related sectors.

"Without adequate funding or financial clarity, executing a project becomes difficult. That directly affects sales, which in turn delays progress," he noted. "When housing slows down, related sectors like steel also suffer due to reduced demand."

Sarker also said, "Even reputed companies face pressure, though smaller developers are hit harder due to reliance on bank loans."

Sumon Chowdhury, secretary general of the Bangladesh Steel Mill Association, said the market has shown a slight price recovery recently, but mills remain in the red.

Raw material imports cost Tk 50,000-Tk 54,000, with around Tk 30,000 in processing and energy costs, he estimated.

Most mills are selling below breakeven due to high bank interest and input costs, he said.

Chowdhury is, however, hopeful that with the right sentiment, things can turn around soon. "Positive sentiment can help demand recover."