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Part 1
Issues & Challenges facing the Bangladesh Re-Rolling Mill Industry
Re-rolling mills are an important part of our economy as they supply the steel rebars for our construction industry. Yesterday and the day before, we printed an article on the state of re-rolling mills in Bangladesh and a market analysis of the local and global demand for rebars and an article on how re-rolling mills can increase their efficiency and diversify into higher value products. In this article we discuss some of the remaining issues and challenges facing the Bangladesh re-rolling mill industry and suggest how various stakeholders, including the government, can help.
Issues and Challenges facing the Bangladesh Re-Rolling Mill Industry
The re-rolling mill industry in Bangladesh has not added much capacity over the last 10 years, has not incorporated new technology and has not capitalized on the export markets. The industry association has primarily focused on demanding fiscal incentives and on advocacy. The industry does not compare favorably with re-rolling mill industries in other countries. Some of the issues facing the industry are as follows:
Develop New Sources of Raw Material
The RRM industry traditionally relied on ship breaking scrap for the majority of its raw material requirements. Since the decline of the ship breaking industry in Bangladesh (from 1.79 million tons per annum in 2001 down to 0.55 million tpa in 2005 and up again to 0.97 million tpa in 2006), alternate sources have been developed, as shown in the table. The RRM industry depends largely on imported raw material. The country needs to establish local production of quality raw material. Simultaneously, port facilities need to be improved to facilitate easier import of raw materials.
Source: Bangladesh Re-Rolling Mills Association
Create own power supply
The biggest problem faced by the RRM sector in Bangladesh is the lack of adequate power supply. The supply is erratic and unpredictable which leads to large losses in repeatedly reheating the metal. Last year the government announced that the RRM industry will receive power only at night, leading to further problems for the industry. Since the whole country is facing a shortage of power, the RRM industry has no hope for this problem being resolved in the near future and has to either install captive generators or continue to suffer. In this regard an industry friendly policy for small power plants with assured off take by the government would largely solve the problem.
The problem with captive generation for re-rolling mills is the higher capacity that one has to set up for generation to be able to accommodate the peaks. The solution is to have larger generation shared amongst several industries to increase capacity utilization or to have export to the grid and import from the grid with only nominal wailing charges to be paid. There is no policy allowing for such arrangements. Given the challenges the country faces, government interventions to engage with the private sector to develop proposals that meet the needs of the industry while at the same time safeguarding the nation’s interest could go a long way in resolving some of the issues.
Develop culture of quality assurance and certification
Bangladesh has a lack of testing facilities, both for raw material (billets/scrap) and finished goods. Quality assurance is needed at both these two stages of production. If RRMs knew the composition of the raw materials being charged in the melting furnace, they could modify the material to get the desired properties in the final output. Furthermore, there is a shortage of labs in which to test the quality and composition of the rebars produced. In other countries many factories have their own state of the art in-house test laboratories as part of their quality assurance management strategy.
In Bangladesh, the situation continues as it has for years, since most construction companies do not demand certification that rebars adhere to strict international or national quality standards. Thus the RRM industry is not under pressure to improve, quite unlike the ready made garments industry.
Further, most re-rolling mills in Bangladesh are not ISO-certified. The above is crucial for attracting FDI and for penetrating the export markets where international certification standards are needed..
Support investment in new technology
The industry needs incentives for process and technology improvements. China was able to increase steel production from 67.2 million tons in 1990 to 349.4 million tons in 2005 , mainly due to government support. India, on the other hand, has fared relatively poorly due to lack of government support . In Bangladesh as well, the government can do more to address the need for centralized quality testing laboratories, technical training institutes and wide scale awareness on the upcoming potential of the sector. The government needs to design and implement a new policy for the RRM industry with a view for long-term viability. With support from the government, output and value addition of this sector could substantially increase.
Increase access to commercial or development finance
The RRM industry in Bangladesh has not shown much interest in obtaining bank finance and the banks have also not been proactive in approaching this sector for financing. Banks feel that RRMs are not transparent enough and they themselves lack the information and capability to assess RRMs’ credibility and risk-factor. This is a barrier to the modernization of the industry since RRM owners do not upgrade their facilities. Furthermore, lack of access to finance is also a constraint on possible export activities since RRMs have no export-credit.
Possible consolidation of steel industry
While mergers between major companies like Mittal Steel and Arcelor are occurring elsewhere, the ‘consolidation’ trend is still absent in the Bangladesh steel industry. The RRM industry is fragmented and disaggregated. Most of the factories are too small to take advantage of tandem line production to ensure quality and low cost efficiency. The industry is disorganized and marked by destructive competition among individuals who choose to compete with one another to offer the lowest price, rather than cooperating for the collective good, or adopting progressive manufacturing methods to improve quality and reach higher value larger markets.
Consider the environmental impact
There is little to no monitoring of the environmental impact of RRMs in Bangladesh. While this may seem like a temporary advantage for RRM owners who are left unaccountable for their actions, it is indeed a gross injustice and will lead to grave consequences if left as is. It is imperative that steps are taken, either by the government, civil society or RRMs themselves, to monitor, evaluate and work to alleviate the environmental footprint left by the activities of the RRMs. Sustainable, eco-friendly methods need to be adopted. It is only a matter of time before the Government imposes laws regulating the environmentally damaging activities of the industry. To prepare for this situation, RRMs can be proactive and begin modifying technology to reduce the emission of harmful gases.
Modernize and Automate
“In our country a common problem is that production is not research-oriented,” says Professor Dr. Kamal Uddin, Director of Institute of Appropriate Technology, BUET. While in-house training and research may not be financially viable, the government or private sector service providers, such as BUET, need to address this gap in the market. In the future, for example, RRMs will need to start automating bar scanning facilities so that all production data can be input from a centralized computer: bar codes created by production software can be automatically loaded into the machine controller to eliminate manual entry of info by the operator thus eliminating incorrect data entry and errors and minimizing the time it takes for data entry and reducing operator key strokes and minimizing wastage of material. This has been accomplished by state of the art RRMs in the Middle East.
Conclusion
Given the large scope of opportunities in this sector, its time the stake holders come together to develop a holistic and integrated strategy for growth.
Steel Re-Rolling Industry in Bangladesh
Number of Re-Rolling Mills 250
Number of People Employed 16,920
Number of Females Employed 720
Average Age of Machine (in years) 18
Average Capacity of Re-Rolling Mills 600-800 tons/ month
Average Capacity of Integrated Facilities 1200 tons/month
Steel Bars Produced Nationally (per year) 2.4 million tons
National Demand for Steel Rebars 2 million tons
Steel Bars Imports Negligible
Steel Bars Exports 200-400 thousand tons
Product range Deformed bar 40 and 60 grade
Source : IFC-SEDF, 2006
Break Down of RRM Raw Material Source
Annual RRM Raw Material Requirement 2.6 million tons
Local Recycled Waste Metal 1.0 - 1.5 million tons
Ship-Breaking Scrap 0.2 - 0.4 million tons
Imported Billets 0.2 million tons
Imported Re-Rolling Scrap 0.2 million tons
Imported Melting Scrap 1.0 - 1.2 million tons
Rajeev Gopal: Coordinator: Value Addition to Firms, IFC |