Lower global steel prices augur well for the Pakistani economy.

Byline: Khalil Ahmed

Steel production as well as consumption is contingent upon the economicgrowth. Whenever there is robust economic growth, the consumption and prices of steel move northwards. Economic growth entails monumental government spending on infrastructure which culminates in employment generation, surge in manufacturing, spike in exports or imports, to say the least. Steel is the mainstay of construction sector, machine-manufacturing and automobile sector, to be precise.

It is currently being anticipated that the demand for steel is going to slow down over the period of next couple of years. One of the reasons for the slowdown in the demand is the anticipated lower consumption by Chinawhich is the largest producer as well consumer of steel in the world currently. China produces approximately half the steel produced globally.

The tit-for-tat tariff imposition by the two leading economies of the world, the United States and China, seems to be dampening the demand sentiment in the not-too-distant future. The trade dispute between the two leading economies and on top of that the downward economic forecasts by the International Monetary Fund have given credence to the fact that the steel prices would remain subdued for a couple of years. Germany, the largest economy of Europe, has cut economic growth projections. There is no sign of economic stimulus package by China. Chinese economy might grow at around 6%. It is evident from all this that the manufacturing and construction sectors would not perform robustly. Around 50% of the total consumption of the world steel is by the construction sector and 12% consumption is by the automotive sector. Lower demand of steel indicates that there would be less spending for the infrastructure comprising skyscrapers, roads, hospitals, industrial structures etc.

This is also indicative of the fact that less vehicles would be manufactured in the prevailing conditions. It must be noted that around 900 kg of steel is used per vehicle. Lower production of vehicles means lower requirement of steel in the global arena which would leave impact on the world economy.

Pakistan's infrastructure is dilapidated and this is an opportunity which Pakistan must not squander. By virtue of lower steel prices, the cost to be incurred on the infrastructure would go down drastically since steel component cost is quite substantial. The incumbent government has pledged to construct five...