According to a letter sent to the FBR by Pakistan Steel Manufacturers Association, presently steel bars, finished products made of ship plates, are being sold at prices of steel billets, which is a raw material for same product. Presently, there is a difference of Rs 12,000 to Rs 14,000 per ton in the prices of two raw materials – ship plates and steel billets – used to produce steel bars commonly known as “SARIA” using the same hot rolling process, it added.
This is due to special concessions forwarded to the ship breakers, which are selling ship plates at lower rates, resulting in slow sales of steel bars made of steel billets. “A few years back, many incentives and relaxations were given to the ship breaking industry for their revivals in the world market due to hike in prices of scrap ships,” it added.
Although, the situation is now much better than previous years and ship breakers are getting more ships for breaking as annual traditional tonnage of scrapped ships have increased from 0.4 to 0.5 million tons to over one million ton per year, it added.
Normally, the prices of scrap ships are about $50-60 per ton higher than meltable scrap prices, however, now due to the economic recession and shipping industry crisis, the prices of scrap ships are now about $50-60 per ton less than meltable scrap on landed basis. This has resulted in the cheap availability of ship plates in the domestic market and financial losses to the steel melting industry, which is struggling to produce quality products in the developing economy of the country. In addition, as per calculations, the difference in conversion cost to produce billets from meltable scrap and scrap vessel to ship plates is approximately $80 per ton in favour of ship breakers. Hence, total difference comes to $130 per ton which translates into about Rs 13,000 per ton.
“We urge FBR that current difference should not be more than Rs 1,500 to Rs 3,000 per ton as agreed by the ship breakers, steel melters and re-rollers under a signed agreement,” it said. Three years ago it was decided between ship breakers and steel melters that the price difference between Pakistan steel billet and market prices of ship plates (re-rollable) should be maintained at Rs 1,200 per ton, it pointed out in the letter.
Steel melters have demanded this agreement be implemented keeping in view the market dynamics that customers cannot pay Rs 12,000 per ton more for billet based steel bars as compared to cheap steel bars made from ship plates. Ship breakers’ argument that they are paying Rs 5,862 per ton as sales tax is not true as the actual calculation will be Rs 4,132 per ton as government has already granted a concession to ship breaking industry under which they are paying sales tax on 70.5 percent of the ship, it pointed out.
“If a ship is 100 tons then ship breakers will pay tax on 70.5 tons, while tax on 29.5 tons will be waived under special concession,” it maintained. The fact is the ship breakers are paying sales tax only on 70.5 percent of the weight of the scrap ship, while there is no customs duty, sales tax on such expensive items such as copper, brass, aluminium, machinery, kitchen stainless items, ropes, chains, wood, bunkers oil, lubricants, paints, ship tackles, electric cables, and switches, etc.
As per new SRO, ship breakers will pay sales tax at import stage, while previously they were paying sales tax through Post Dated Cheques (PDCs), of which several were not encashed for years and the FBR lost revenue. Steel melters are of the view that as per the agreement and as per market dynamics, the FBR should restructure the duties and taxes in such a way that the difference between ship plates and steel billets should not exceed Rs 3,000 per ton.