Hafiz-ur Rahman Khatib

By MADHUMITA MOOKERJI

Hafiz-ur Rahman Khatib from Pakistan, Co-founder, Khatib Sons International (KSI), put years of his procurement and logistics experience at the Crescent Group and Tuwairqi Steel Mills to good use in setting up his own scrap sourcing company in March 2018, post-retirement. He was joined by his 33 year-old son, Munif-ur-Rehman, an MBA and engineering grad, in charting out a business formula that is an amalgam of experience and fresh ideas which are incubating this fledgling company. KSI is acting as a bridge between steel smelters and overseas scrap suppliers and already has a roster of buyers that include many major furnaces and rolling mills in Pakistan while the scrap suppliers are amongst the most dependable recyclers. Steel360 caught up with this father-son duo in Bangkok to learn that although the Pakistan economy is not in the best of health, there are expectations that steel demand will increase once government-funded infrastructure projects kick off in the near future.Hafiz-ur Rahman Khatib

Q.Tell us a bit about your company
A. Hafiz-ur Rahman Khatib: The company’s name is Khatib Sons International (KSI). It is a very new set-up, formed as recently as in March 2018. I have a background in steel and banking (international trade) – I was the supply chain manager in the steel segment of a renowned industrial group in Pakistan, the Crescent Group, who are manufacturers of large diameter spiral submerged arc welded steel line pipes. These pipes are used in the oil, gas and water sectors. I also served for eight years in Tuwairqi Steel Mills Ltd (TSML) – manufacturer of DRI in Pakistan, in the capacity of head of procurement. TSML was the project of Al-Tuwairqi Holding Saudi Arabia. But this project is not in operation now.
I started my company KSI after retirement, along with my son, who has both an MBA and an engineering degree to his credit.
I do have experience in scrap since at my previous job in Crescent Steel I did the planning and buying of this material. Crescent Steel is also a manufacturer of steel billets.
My procurement experience is helping me in my newly set-up company, which is a sourcing agent in Pakistan for mainly ferrous scrap. We source the scrap from the UK, Europe, UAE, Kuwait and the US and supply to the local electric arc furnace (EAF) and induction furnace (IF) units in Pakistan.

Q. What is the demand for scrap like in Pakistan at present?
A. Munif-ur-Rehman: Pakistan’s economic condition is not really that good and many furnaces are not working to their capacity at present but the expected development in the steel industry cannot be ignored. Still, the total monthly demand for scrap is more than 200,000 tonnes (MT) per month as compared to the years 2017-2018 when imports of ferrous scrap were at more than 400,000 MT per month. It is expected that the demand will increase further as new re-rolling units are going to start their operations. Some sugar and textiles industries are also diversifying into steel.

Q. Where does Pakistan mainly source its scrap from?
A. Hafiz-ur Rahman Khatib: Pakistan sources 65-70% of its total scrap requirement primarily from the UK and Europe. The rest comes from the Middle East, North America, South America, Australia etc.
Scrap is also produced domestically, but which fulfils only around 20% of our total requirement. Thus, a significant volume of the material has to be sourced from overseas.

Q. Scrap demand in your country is at around 50% of its optimal capacity… So, when do you think there can be an upturn in the demand scenario?
A. Munif-ur-Rehman: The demand scenario has improved much at present due to upcoming infrastructure projects. Ferrous scrap demand is actually fuelled by the demand for steel billets and rebars. Demand of steel is gradually increasing due to infrastructure development projects like coal-based power plants, dams, motorways, flyovers, railways, bridges and housing schemes etc. The China Pakistan Economic Corridor (CPEC) has had a positive influence on the steel industry since its inception. Moreover, the Government of Pakistan has launched a big housing project which will add to the demand for steel. The future of Pakistan’s steel industry thus looks better.

Q. At what rate is the market for finished products in Pakistan likely to increase/decrease?
A. Hafiz-ur Rahman Khatib:The developmental programmes of the government which had slowed down during the last one-and-a-half years are now taking off. The Pakistan economy is getting out of its crisis. And, despite all odds, we hope steel demand will increase in the days to come.
A lot of funds that were to be utilised in developmental work have not yet been used up, so it is expected that in the next fiscal Budget, in June 2020, these will be utilised. When there is allocation for infrastructure development, demand for steel automatically shoots up. If two to three big infrastructure projects are initiated, then steel demand will get a boost. Infrastructure development projects in Pakistan, as with most countries, are always government-funded but joint ventures through foreign investments also happen.

Q. What is the scenario like in Pakistan at present with regard to electric arc and induction furnaces?
A. Munif-ur-Rehman: All our steel comes from the EAF and IF routes. Pakistan has around 350 steel smelters and among them only 6-7 are EAFs, while the rest are all IF-based. EAF is a technologically advanced process compared to IF but it requires more maintenance which adds to the cost. EAFs are usually feasible for larger-scale melting arrangements that make it more commercially viable. For instance, one of the leading mills owns a 45-tonne furnace.

Q. What are the challenges and opportunities for the steel mills in Pakistan?
A. Hafiz-ur Rahman Khatib: There are multiple challenges this industry faces.
Usually, challenges are in the form of expensive power tariffs which raise the cost of production significantly. Besides that, there is the issue of competing with low- grade billets and ingots in the local market at unregulated prices which makes it difficult to sell quality products in the market at the right prices. There should be long-term sustainable policies by the government which should not be affected by any external influences.
As for the opportunities, we see these in the initiation of big infrastructure projects, including CPEC. There is also news that China is going to set up a steel mill in the northern area of Pakistan through a joint venture.
Besides, the government has announced zero-rated custom duty in order to facilitate imports of scrap in the Budget for 2019-20. This may also lead to an increase in the imports of melting scrap. Moreover, a new standardised taxation structure is in place which will create a level playing field for the steel manufacturers, irrespective of their size.

Q. What is the production volume of crude steel and demand for finished steel like in Pakistan at present? Where do you see finished steel prices in your country heading?
A. Hafiz-ur Rahman Khatib: Pakistan is ranked 28th with an estimated volume of 5 million tonnes (MnT) of crude steel production per year. The official figure of 2019 is yet to come in. However, the estimated volume is around 6 MnT at present. Overall, finished steel demand is around 8 MnT per annum. Prices of finished steel depend on the prices of raw materials. For instance, rebars have different strengths but when prices of rebars go up, finished steel prices also rise in tandem.

Q. Where does your company see opportunities for growth?
A. : Munif-ur-Rehman: Despite the drawbacks, there is expansion and new plants (IFs) are coming up. Players feel there will be a demand surge for finished steel. If all goes
well, the potential domestic scrap demand of 400,000 tonnes per month may increase by 20-25% or even more – because newer plants are coming up and they are going for economies of scale. These players are setting up bigger plants so that the cost per tonne goes down. The present cost per tonne differs across IFs and EAFs and across regions too.

Hafiz-ur Rahman Khatib: There are thus opportunities for our company… we are hopeful that in one or one-and-a-half years, the Pakistan economy will revive and the steel industry, which is the backbone of an economy, will too look up, InshaAllah.