Falling demands, cancellation of export orders, severe cash crisis and exhausted raw materials may force the four heavy industries to shut down
The nationwide lockdown to prevent the coronavirus spread is going to have a significant impact on sales and production of four Chattogram-based heavy industries at least for a short-term, market players said.
The vulnerable industries are: steel, cement, shipyard and ship-breaking.
From a booming demand till February riding on the mega development projects, sales of steel and cement went down rapidly in March by around 30 percent and up to 80 percent in the first week of April.
The consequence they are facing is a severe crisis in cash flow. Although the central bank has ordered banks not to classify a borrower in case of failure to repay loan instalments until June 30, interest will be counted.
Dwindling raw materials, which may be exhausted in a month, may force the two industries to shut down production.
The shipbuilders' problem is similar to that of the garment exporters. They have faced cancellation of export orders worth $120 million (over Tk1,000 crore). There are around 80 companies that build ships for the local market.
Meanwhile in the port city, there are around 80 ship-breakers that made Bangladesh the highest importing country of scrap ships in 2019. They supply scraps to steel mills. Around two lakh people work in the industry and they are now sitting idle now due to the lockdown.
Yet, all these sectors will have to count costs for operations, energy bills and employee payments. These sectors are lucky enough that they are not labour-intensive as the garment sector.
"Sales have dropped as high as 80 percent…no cash flow," said Shariar Jahan Rahat, deputy managing director of KSRM, one of the top five steel makers in the country. The mill employs around 3,500 people.
Rahat said he was not getting raw materials, but money was stuck in letters of credit for imports. More than two-third of six million tonnes of scraps the sector needs comes from import.
According to the industry players, Bangladesh's combined annual installed capacity of producing steel in 2018 was 8.5 million tonnes and the country consumed seven million. The sector witnessed a double-digit growth over the last several years.
The sector is a bulk user of electricity and gas, and they have to pay monthly Tk3-10 crore in bills, depending on the size of the mills.
"The government should postpone taking the bills during this difficult time, and banks should waive interests on loans for the time being," Rahat said.
Bangladesh has four cement hubs – Chattogram, Meghna Ghat in Narayanganj, Mongla and Sylhet, with Chattogram producing around half the annual demand for cement.
Zahir Uddin Ahmed, managing director of Confidence Cement, said they have been severely affected like the other sectors.
"Our production is totally off…life comes first," Ahmed said. "But we have to pay our employees," said Ahmed, also a vice president of the Cement Manufacturers' Association.
Md Shahidullah, first vice president of the association, said it will take time and money to recover from the losses they are incurring now.
In the last seven years, the production capacities of the local cement companies increased by 131 percent against a 106-percent rise in the demand.
At the end of 2018, the production capacity stood at 5.80 crore tonnes while the demand rose to as much as 3.10 crore tonnes. Of the locally produced cement, about 35 percent was used in different government projects.
There are over 100 shipbuilding companies, largely concentrated in Dhaka, Chattogram and Narayanganj, with Chattogram having the most number of bigger companies. Some of them are Western Marine Shipyard, Chittagong Dry Dock, FMC Dockyard and Karnaphuli Shipyard.
A few shipbuilders are in the export market with Western Marine leading the sector. Over the past 10 years, around 40 ships had been exported that yielded over $180 million.
Yasin Chowdhury, managing director of FMC Dockyard, said they faced postponement of 52 sale orders, including 12 for exports worth $120 million.
Sakhawat Hossain, director of Western Marine Shipyard, said the industry needs fiscal and policy support from the government for its survival.
He said his company has around 3,500 employees, and that they are struggling to pay them.
There are around 200 ship breaking yards along the coast of northern Chattogram while half of them are active.
The industry supplies scraps, the vital raw materials for steel, by importing and breaking down scrap ships. Last year, Bangladesh imported 236 scrap ships for dismantling.
Abu Taher, president of Bangladesh Ship Breakers' Association, said they have stopped all works due to the coronavirus. "The industry needs support to help our workers in this bad time."