Business StrategyAn Overview of Steel Industry in Bangladesh Prepared for Mr. Sheikh Morshed Jahan Associate Professor Course Instructor Prepared by Group A4 Mohammed Masudur Rahman Rifat Hasan Rukesh Dutta Ishtiaq Rabiul Islam Nabeel Khan Ahnaf Zabee Muhammad Sabbir Rashid Farwah Tasnim Al Imran Bin Khodadad Mohammad Sakib Khaled Rituraj Baidya ZR 07 ZR 13 ZR 23 ZR 25 ZR 29 ZR 35 ZR 38 RH 40 ZR 46 ZR 55 ZR 56 Section A BBA 18th Institute of Business Administration University of Dhaka 24th September 2013 AS [Type the company name] [Pick the date] .............. 1 Industry Trend................................2....................................... 3 3........ Ship-building ........ 5 5........................................................................................................................................................ 3........ 3 New Uses of Steel in Bangladesh .............................................................. 5 Pre Engineered Building .................. 4.....................................Contents 1........1.....1................................ 2..................................................................................... Market Size ........................................................................................... 5................................................................................................................... 9 Market Potential ..................................................................................................................................................................................... 5............................................................................................. 3 Market Trends .......................................... 3.......................................................................... 9 Bibliography ..................................... 3 Regulatory Environment .................................... 9 Future .......................... 7 Major Barriers for business .............................................................. Major Companies .................... 7................................................................................................ Steel Industry in BD .........................................2................................. 11 2|Page ....................................... 1 Grades of Steel Imported & Manufactured in Bangladesh ..... 9........................................ 8....................................................................................... 6 6................................................................................................................. Bangladesh is a relatively new market to the steel industry. mainly corrugated iron (CI) and galvanised plain (GP) sheets were exported to the African countries last year. The latest move to withdraw the upper cap on bank lending rates has also pushed production costs up. The more growth an economy experiences the bigger it is a market to the steel manufacturers. Over 1. real estate and many more industries. they hinted that prices would continue to rise in local markets till the taka stops to depreciate. construction. thanks to the country’s low production cost and high quality items.000 a tonne. Bangladesh has emerged as a competitor to major steel-making countries Japan. Steel is the base of ship making. electricity and oil and a bleak prospect in the country's infrastructure projects.1. It is a compulsory product to all factories in the country.000 to Tk 72. but cannot do so due to non-tariff barriers. 2012) 1|Page .000 crore-industry in recent months. Manufacturers said that a low pressure of gas. Russia and India with strongholds in the African markets. After several new industries started to flourish. gas. Steelmakers import at least 70 percent of their raw materials.000 between January 2011 and January 2012. rising costs of raw materials and bank borrowing. Other players include companies in Turkey. mainly because of a depreciation of the taka against the US dollar. The major companies that export steel to Bangladesh are TATA Steel and Mittal Steel. and a tight liquidity situation have hurt the Tk 30. The high bank interest rate has already dealt a serious blow to the industries. 2. Industry leaders said many factories have cut their production by up to half due to a rise in the prices of raw materials. Currently. Currently Bangladesh has over 150 steel manufacturers in Bangladesh. TATA steel comes mostly from India while Mittal Steel comes from Indonesia. Hence raw steel is being imported from other countries. That is when the true journey of Steel in Bangladesh started. Bangladesh has the capacity to export rod to the northeastern Indian states. South Korea. Bangladesh saw its biggest success when a flood of RMG factories boomed the national economy. Steel Industry in BD Steel and Industrialization are closely related to each other. Grades of Steel Imported & Manufactured in Bangladesh Types of steel manufactured in Bangladesh 1. Dubai and a couple more from India. 1 Though the leaders could not say much on future steel (rod) prices.5 lakh tonnes of steel products. the price of a tonne of 60-grade rod has risen by Tk 10. The cost of producing a tonne of 60-grade rod has increased by Tk 18. 1 (Bangladesh Bureau of Statistcs. it took about 50 years to finally get the industry going. Chittagong. Brazil. Two of the biggest group companies Abul Khair Group and BSRM rely mostly on Steel. While it’s journey started with Taheri Africawala and Akberali Africawala in when they made a bold decision to put a steel rolling mill in 1947 in Nasirbad. Raw: Bangladesh does not have the resources of iron. as they are not getting funds to buy raw materials. depreciation of the taka. Bangladesh heavily imports billets and slabs since they are directly converted from raw steel. Semi finished steels are partially imported and the rest manufactured in Bangladesh.Steel Semi Finished Stainless Slabs Finished Tubes & Pipes Seamless Tubes Weldless Tubes Raw Flat Hot Rolled Coil Cold Rolled Coil Sheet Long Reinforcing Bar Merchant Bar Structural Sections Wire Rod Engineering Steels Billets Blooms Hot Rolled Plate Tin Plate Coated Sheet Coated Steel Coil Forging Figure 1 Grades of Steel 2. huge civil constructions. Only top manufacturers like BSRM and AKS manufacture limited amount of billets and slabs 2|Page . ships etc. Semi-finished: Semi finished steels are used to create massive structures and finished steels. For example: PEB Structures. 1. Besides this there should. appropriate documents surrounded by the extent of the abovementioned situation and system and convention have to be followed. making the country one of the lowest consumers of steel products in the world. There are about 140 Re Rolling Mills in Bangladesh. Bangladesh has more than 400 steel. re-rolling and auto-re-rolling mills with a combined annual production capacity of 80 lakh tonnes. Demand for 60-grade rod was rising on an average 10 per cent annually and mainly being consumed by the real estate developers. Control on products to be exported to other countries Export Prohibited Products Products under Conditional Export Exportable goods 2 (Bangladesh Bureau of Statistcs. Industry Trend 3. 4.500 for the same amount of imported melding scrap. These mills provide high competition and are the main resource to Real Estate in Bangladesh. Ship breakers pay Tk 1. Steel industry is suffering uncertainty and volatility in prices due to dominance by some ship breakers. Re Rolling Mills and Pipe manufacturers. 2 3. and from time to time the set of new or changes in laws linked to foreign currency exchange was issued by the Bangladesh Bank and have to be followed in container of export of merchandise and services from Bangladesh. 2012) 3|Page . both governmental and private.2.3. 3. Regulatory Environment Rules and Regulations for Export of Products in others countries The circumstances predetermined in this Policy or in other associated laws. Rod consumption has gone up in rural areas due to a rise in people's income levels and a steady inflow of remittance.000 for each tonne of scrap steel where as the auto re-rolling millers have to pay Tk 1. Other industries that make heavy use of steel are also included in this mix. But it consumes only 40 lakh tonnes of rod a year. Market Size The market expands from the numerous steel re-rolling mills of Bangladesh to the few ship building yards. Market Trends Local steel millers' vast capacity to produce rods has remained largely untapped due to a drop in demand with nearly non-existent development and infrastructure works in the public sector. Finished: Finished products in Bangladesh are manufactured through PEB manufacturers. Export of samples matter to completion of the following circumstances: the product is not export banned. purchase sort or move forward payment subject to the obedience of EXP Form and Shipping Bill. Gift package value of US$ 1. Promotional of any worth or weight. b) Memo from the buyer with information of the defective products.000 worth of goods (except medicine) based on Free on Board value per exporter per year. the exporter shall have to submit the following documents to the Customs Authorities: a) Duplicate copy of the Sales Agreement. a protection bond shall have to be posted to the Customs Authorities at the moment in time of export stating that the goods will be imported reverse after conclusion of the essential mechanism. 3 Export opportunities without Letter of Credit Exports without Letter of Credit can be done through buying agreement. provided that in crate of medicine the highest shall be US$ 30. and c) Any other circumstance to be meeting according to the Customs Law. 99 Bangladeshi exporters will be licensed to export substitute goods in case the exported manufactured goods is establish defective as per the sales contract. if needed. export without Letter of Credit will be allowed on shipment basis.000 or comparable in Bangladeshi Taka. 2005 issued by the Office of the Chief Controller of Import and Export. In case of Advance Cash Payment. 2013) 4|Page . 42 (2003-2006)/import dated June 28. conformity.000 if there is refusal export letter of credit. Goods sent as samples free of charge. However. “Import value” under entre-pot trade shall pass on to the C&F cost of the imported manufactured goods as confirmed at the docks of Bangladesh. A person peripatetic to a foreign nation can bring his or her means of transportation along with himself or herself if allowed under the carnet de passage by the Authorities or any added suitable 3 (Bangladesh Rerolling Mills Association. The Bank can add to these limitations investigative each case. whichever is less. or 5 percent of the whole value of the letter of credit or US$ 5000. However. Bonafide baggage of travelers traveling outside Bangladesh Re-export Entre-pôt trade and re-export shall have to be ways under the actions predetermined in the Public Notice No. substitution or refill of the imported goods. Export-cum-Import Cylinder and ISO tanks can be exported on a provisional foundation only for the reason of repairing. A highest of US$ 5. Pre-shipment commitments Quality Control Documentation 5.000 tonnes and they are working to expand their facilities to build bigger vessels. But industry owners say Bangladesh will continue to grow because it has several advantages over rivals. and b) An insurance bond has to be submitted stating that the equipment shall be returned after the conclusion of the assignment. Re-exportation of Frustrated Cargo A disturbed cargo can be re-exported in observance with the policy of the Customs Act 1969. they can produce ships of about 10. Japan and South Korea. New Uses of Steel in Bangladesh 5. It's a small beginning compared with giants such as China. ship owners can save at least 15% of the production cost here Although a number of shipyards in Bangladesh now have the capacity to build vessels for international markets. On average. Bangladesh plenty of skilled manpower and our labour cost is cheaper than many other countries. Western Marine and Ananda Shipyard & Slipways . However.authority.1. Ship-building When it comes to shipping. in recent years it has also emerged as a shipbuilding country. and oceangoing multi-purpose ships worth more than $500m (£320m). Germany and Finland. Shipbuilding yards in Bangladesh are now exporting small and medium-sized ships for the highly competitive European market. Since 2008. or authorized against the protection bond submitted to the Customs Authorities with the circumstance to re-import. cargo vessels. The construction. 5|Page . At the moment. engineering and electrical business shall be permitted for the time being to export-cum-import equipment for responsibility work as per agreement under the following circumstances: a) Applicable documents of contract and reward have to be given to the Customs Authorities. with dozens of ageing container vessels heading towards its southern coast for scrap. Bangladesh is known mostly as a shipbreaking nation. The vessels were built for countries including Denmark.based near Dhaka have been leading the way in production for overseas buyers. Bangladeshi yards have manufactured and exported ferries. 000 metric ton/year. A pre-engineered structure can be used for commercial. building accessories. 5. they say countries such as Japan. create flexibility of expansion. The benefits are many fold. South Korea and China are building very big. there are some active players in the market. To start operation. The major local competitors are Sarker Steel Limited (SSL). specialized and hi-tech ships. if Bangladesh can even serve 1%. 4 With the Bangladeshi economy growing at a rate of about 6% a year. it is also facing some external headwinds. a PEB has an upper hand in structure weight and foundation. seismic resistance. Bangladesh Building System (BBS). Experts say more than 50% of the world's ships are more than 20 years old and need replacing. its demand can forecasted using the demand of iron and steel. industry owners are confident their domestic market will help to overcome the tide. completion time and cost. new smaller ships and cargo carriers are needed to transport goods and other raw materials from the main Chittagong port to different parts of the country. Trend shows that the demand is growing at around 3% per year and the total demand will reach over 300. sourcing co-ordination.But despite the industry's strengths and promise for the future. Targeting 5% of the market at the beginning. simplify the process with a single responsible value and offer a higher resell value. The current economic crisis in the eurozone has had an impact.2. Buildtrade International Limited (BEL). The shipbuilding industry here hopes that if the global economy recovers. 2013) 6|Page . The foreign competitors are Zamil Steel and some Indian PEB manufacturers. 2013) (Wavestep Business Solutions. ensure architectural versatility with high quality and low maintenance requirements. in this $200 billion industry. safety and in overall performance. Pre Engineered Building A pre-engineered building (PEB) is a structure which is designed with the best suitable raw material and manufacturing methods satisfying a wide range of structural and design requirements. So. 5 As fabricated steel will be positioned to be a direct substitute of conventional iron and steel.000 metric ton/ year. However. it can earn $2 billion. Confidence can go for a production capacity of 15. then it offers tremendous potential. Comparing a PEB and a conventional steel structure. personal or public benefit purposes. and they are not interested in constructing smaller vessels. permission needs to be taken from both Board of Investments (BoI) and National Board of Revenue (NBR). design and erection techniques. 4 5 (BBC. It helps to reduce construction time and cost. Even though the concept is new to Bangladesh. SteelX. More importantly. future expansion possibilities. in 2006 it was listed in both DSE and CSE. American Welding Society (AWS) and Research Council on Structural Connections (RCSC). airport terminals etc. the design team creates a detailed design and hands it over to the production team which then sends the production and design to the erection team. Major Companies BSRM STEELS LTD Founded: 1952 Headquarters: Chittagong. American Institute of Steel Construction. As per the Bangladesh National Building Code (BNBC).000 MT per year in 2012. product line of BSRM STEEL contains flagship productXtreme500W (Grade 500 steel).The whole process begins with the marketing team discussing the requirements with the client. So. 7|Page . the company has anassociate named as BSRM Steel Mills Ltd where it holds 13. bridges. Inc. capacity utilization rose to 97%. the designs must follow a certain set of codes. Companies that need to build industrial or commercial structures usually come to a specific company with the project. American Society of Civil Engineers (ASCE). The company increased its capacity to 600. a new company needs to promote itself to the industries to create a face value. as well as variations of lower grade steels and melting scrap. American Iron and Steel Institute (AISI). which supplies a portion of the parent’s raw material requirement. Also.148 MT in 2012.71 million (2012) Background: BSRM Steels Limited (BSRMSTEEL) was incorporated in 1952 as the firststeel rolling mill in the country. reaching a production level of 580. Ltd. residential structures such as apartments and condos. ASTM International (ASTM). Subsequently. industrial building projects are price sensitive and it can be used as leverage. Currently. sheds. Bangladesh. warehouses etc. In addition. The company has a subsidiary named BSRM Iron and Steel Co. The residential projects need to be handled carefully because of a lack of pricing standards in the country and a competitive pricing stance compared to conventional RCC buildings can lead to flow of projects. Xtreme500W contributed about 98% of 2012total revenue. The target customers can be sorted by three main requirement types. They include codes from ACI International (ACI). They are Industrial structures such as industrial factories. Resultantly. 6.5% equity interest. The requirements are conveyed to the design team and they come up with the best suitable prototype design and it is taken to the client for approval. Combined effect of capacity increase and demand‐pull increased production by 22%. BSRM owns 95% of equity interest of BISCO. and commercial structures such as healthcare and educational facilities. Revenue Increase: US$ 770. BSRMSTEEL is a manufacturer and marketer of steel bars. (AISC). (BISCO). If the client approves. The erection finally hands over the finished structure to the client. the company has reported net profit after tax (excluding non controlling interest) of BDT 1. after almost nine years. Moreover. 2013) (GPH Ispat. as rise in power and furnace oil consumption cost pushed up COGS. automobiles. buildings.5% in 2012 from 7. The Company subsequently was converted into a Public limited Company along with the subdivision of face value of shares from TK 100 to TK 10 each and enhancement of Authorized Capital from Tk. 1994. bridges & culverts. And this ultra.2.modern.The main raw material. marine vessels and village houses of the country. But due to various unfortunate reasons. The initiative will reduce production cost and limit exchange rate risk for BSRMSTEEL. state-of-the-art steel mill is brought to you by Jahangir & Others Limited. Established in 1966. the factory contributed to the total infrastructural development of the then East Pakistan and subsequent Bangladesh.6 GPH ISPAT LTD Founded in: 2006 Factory: Chiitagong GPH Ispat was incorporated in Bangladesh as a Private Limited Company on May 17. we can hope that the better days are back with the introduction of GPH Ispat Ltd. Revenue: BDT 36. Structural steel products of CSM Limited were used in the development of roads & highways. NPAT grew by 8. 2006 as a Company limited by shares under the Companies Act. high-rise structures. Recently.6% on a YOY basis as the company realized foreign currency exchange gain of 446 million. AKSP was established in 1999 as a private limited company and 6 7 (BSRM Ltd. 2009.83 respectively for the same period of the previous year. Now.001 million with EPS of BDT 3.6 billion (2012) Operating income: BDT 10 billion (2012) Employees: 22000 Abul Khair Steel Products Ltd (AKSP) is a newly established large metal finishing plant in Bangladesh that produces a range of steel products. 2013) 8|Page . Bangladesh. 1.Since then. 7 ABUL KHAIR STEEL LTD Founded: 1953 Headquarters: Dhaka. increased selling and distribution costs caused Operating Profit to decline by 9%. such as cold rolled (CR) coils.08 for the year ended on December 2012 as against BDT 922 million and BDT 2. Not only in multitude of production but also in quality of products. was the company the leader in this region.000 million to Tk. the factory was shut down in 1999. Gross Profit Margin dropped to 6. However. Bangladesh was suffering from scarcity of quality steel. galvanized steel (GS) sheets and corrugated galvanized iron (CGI) sheets. The company has taken initiatives to set up a melt shop to produce 860.9% in 2011.000 MT MS Billet locally. factories. steel billets are sourced both locally and internationally.500 million dated December 18. Chittagong Steel Mills (CSM) Limited was one of the renowned steel mills in the Indian subcontinent. There is a good opportunity to export to the seven 8 9 (Abul Khair Group.000 tons CR coils per year. High electricity consumption is a major concern and for this reason top management decided to participate in the GERIAP project.000 tons CGI sheets and 300. the country's Tk.currently employs about 650 staff. as most of the entrepreneurs have set their production capacity at double the local requirement with the aim of entering the Indian market. so can meet any export demand. India will get steel products cheaply. with large expatriate technical team. if transit facilities without any charges to the neighbour are allowed. The installed production capacity of the plant is 150. As a result. their total production was only 85.943 tons. 2013) (Wavestep Business Solutions. the cost of steel will rise by another Tk 12. 2013) 9|Page . Rising cost of bank borrowings 4. Low pressure of gas 2. If the surcharge is imposed. Future Local steel industries meet the demand of the country and traditionally always have some excess capacity. At the same time.000 crore industry (a total of 30 modern mills) can meet more than 50 percent of the local demand for 30 lakh tonnes of MS rod a year. Due to steep increase in steel prices and competition in the market. Steel millers of Bangladesh fear that the country will lose the USD 3-billion worth steel product market in the north-eastern states of India.000 crore steel industry will experience a negative growth. The company’s production is mostly for the domestic market but is also exported to 13 countries. AKSP recently obtained ISO 9001: 2000 certification. Non-tariff barriers Steel producers have also expressed their concerns over the possible imposition of $150 for each container as surcharge. mostly from India. Rising cost of raw materials 3. Bangladesh could supply steel products to the seven N-E states at a 30 per cent discount than that of the Indian companies. Major Barriers for business 1. If a breakthrough can be made. demand for their products is low and the company is operating at 50% lower than the installed capacity. 8.000 per tonne. while Bangladesh will be able to earn about Tk. 50.000 crore annually.000 tons in 2004. 20. 8 7. Actual production for the base year 2002 was 130. Bangladesh has good potential to export steel products to the Indian north-eastern states as they have huge demand and the people from those states have to pay a huge amount of money to carry those steel products from other parts of India.9 9. Market Potential The Tk 10. and a significant percentage of materials produced in the country follows no international or BSTI standards. where Bangladesh has a very big advantage of geography. Its quality is often not up to snuffs. "We are focusing also on the environment. such that the cost of power generated from furnace oil and gas is the same. 10 | P a g e . due to the port restrictions. Regardless of the odds. However. which gives us a competitive advantage. steel industry in Bangladesh is growing and one can only imagine how much growth we will have if we solve the basic problems in the country. which overrides the benefits of low-cost utilities.sister-states of eastern India. industrial growth will sputter. Steel making requires a lot of energy. Experts say there should be no barriers to steel exports from Bangladesh. "mild steel" rebar (known as "MS rod") is central. The steel market operates in the most competitive environment at all times. Steel production in the country is fairly efficient when in automated plants. all raw materials that we import cost us more in freight compared to our neighboring countries. For the industry to grow the government needs to ensure basic infrastructure. power and gas is among the lowest in the world. but in costs. to supply not only steel but any locally made products. that trade agreements should ensure Bangladesh gets duty-free access to Indian eastern states . The steel industry in Bangladesh has a good future because we have grown steadily in the last 15 years. Lack of implementation and enforcement of standards is extremely dangerous for a country like ours. they have a long way to go to match Western efficiency levels. providing the bones inside the concrete muscle that holds buildings together. Only some companies make rebar conforming to international standards. The future of local steel is to become greener as well as automated. power. not in operations. and the government can have one fixed price for the purchase of power from producers whether it is based on gas or furnace oil. good infrastructure and qualified human resources. but as an industry. which currently is not happening fast enough due to the faulty policies. and therefore when the economy does well. This will automatically bring many more entrepreneurs to invest in the power sector. the industry will also do well. There is no need for government to intervene at any point in time and create disequilibrium. and have installed fume-extraction systems that work efficiently to protect our environment by controlling the air discharged from the plant. and this makes us not as cost-efficient for exports. In the industry. Bangladesh is efficient.As our economy keeps growing and size of the industry grows. more and more companies will be able to afford newer technologies. gas and an educated workforce -. The cost of labor.without which.and with less cut red tape. BSRM and others have long proposed a subsidy on furnace oil."The steel industry's growth is highly correlated with that of the economy. which is in an earthquake zone. com: http://www. (2013). Retrieved from www.com GPH Ispat. Retrieved from BBC.uk/news/business-19315841 BSRM Ltd.Bibliography Abul Khair Group. GPH Ispat. 11 | P a g e .com. (2012).bbc.abulkhairgroup. (2013).bsrm. Ship Building in Bangladesh. BSRM. Dhaka: BBS.bd Wavestep Business Solutions. Bangladesh Rerolling Mills Association. (2013). Retrieved from www. BRMA Regulations. (2013). BBC. BRMA. (2013). (2013). Retrieved from web. Dhaka.com Bangladesh Bureau of Statistcs. Abul Khair Group.gphispat. Pre Fabricated Steel Industry Bangladesh.co.