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Thursday, May 22, 2025
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Tuesday, June 17, 2025INDUSTRIAL MODERNIZATION
Energy Prices and their impact on the Steel Industry
THE COST OF MODERNIZATION
How Energy Prices Are Impacting Steel Production in Pakistan
Importance of Energy in the Steel Industry
A Sector Under Siege
Pakistan’s steel industry is grappling with an unprecedented crisis, primarily driven by soaring energy costs and persistent power shortages. With electricity tariffs reaching Rs52.39 per unit—the highest in the region—many steel mills have been forced to shut down or operate at minimal capacity, threatening the industry’s viability and the livelihoods it supports.
The Energy Cost Burden
Energy expenses constitute a significant portion of steel production costs. The current electricity rates have rendered operations financially unsustainable for many producers. As a result, approximately 25-30% of steel units have closed, and another 25% have temporarily ceased operations. The remaining mills are functioning at reduced capacity, with some laying off up to 30% of their workforce.
1. Reduced Production Capacity
Mills are operating at just 20-30% capacity, unable to afford full-scale production
2. Increased Downtime
Frequent power outages and load-shedding disrupt continuous operations, leading to inefficiencies.
3. Delayed Modernization
Financial constraints hinder investments in energy-efficient technologies and infrastructure upgrades.
Employment Losses
Thousands of workers have been laid off, affecting household incomes and increasing unemployment rates.
Supply Chain Disruption
The reduced output affects downstream industries, including construction and manufacturing, leading to project delays and increased costs.
Decrease in Exports
Lower production levels limit the industry's ability to meet export demands, affecting the country's trade balance.
Calls for Intervention
Industry leaders, including the Pakistan Association of Large Steel Producers (PALSP), are urging the government to implement measures to alleviate the crisis
1. Subsidized Electricity Rates
Introducing lower tariffs for industrial consumers to reduce production costs.
2. Financial Support
Providing low-interest loans and financial incentives to help mills invest in energy-efficient technologies.
3. Policy Reforms
Implementing structural reforms in the energy sector to ensure reliable and affordable power supply for industries
A Critical Juncture
What needs to change?
The energy crisis poses a significant threat to Pakistan’s steel industry, with far-reaching implications for the economy. Immediate and decisive action is required to address the energy challenges and support the industry’s recovery. By implementing targeted interventions and fostering a conducive environment for industrial growth, Pakistan can safeguard its steel sector and, by extension, its economic stability.
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