Pakistan’s long-steel industry, battered by years of weak demand and soaring production costs, is showing early signs of a turnaround. Analysts now expect a slow but steady recovery starting in fiscal year 2026 (FY26), driven largely by a mix of government incentives, infrastructure spending, and reconstruction efforts following devastating floods in Punjab and Sindh.
Government Eases Cost Pressures for Steelmakers
The FY26 federal budget has delivered significant relief for steel manufacturers struggling to stay competitive. Customs duties on essential raw materials have been slashed:
- Steel scrap: From 2% to 0%
- Melting scrap: From 3% to 0%
- Semi-finished billets: From 11% to 5%
These changes are designed to reduce input costs and make it more viable for producers to convert raw materials into construction steel, particularly rebar—a core product in housing and infrastructure projects.
Housing and Construction Incentives Aim to Spark Demand
To further stimulate activity in the construction sector, Islamabad has introduced a Rs5 billion mark-up subsidy, new tax credits for mortgage repayments, and targeted incentives for low-cost housing. Analysts say these measures could unlock pent-up housing demand, particularly among Pakistan’s middle class, which accounts for more than half the population.
Another key policy change includes phasing out sales tax exemptions in the former FATA and PATA regions. Sales tax in these areas will rise from 10% in FY26 to 16% by FY29, helping create a level playing field for documented businesses.
Flood Recovery Expected to Drive Steel Consumption
The recent floods, which devastated parts of Punjab and Sindh, are expected to create sustained demand for building materials as reconstruction efforts gather pace. Unlike in FY23, when post-flood rebuilding efforts were undermined by economic instability, the current mix of fiscal support and relative macroeconomic stability could translate into a tangible boost for steel consumption.
Infrastructure Spending Set to Support Growth
The government has earmarked Rs4.2 trillion for the Public Sector Development Programme (PSDP) in FY26, signaling a strong focus on infrastructure development. Combined with large-scale rehabilitation projects in flood-hit regions, this spending is expected to drive demand for long-steel products well into FY27.
Outlook: Domestic Market to Lead Recovery
While this rebound will be driven almost entirely by local demand rather than exports or improved efficiency, industry watchers see it as a crucial step toward stabilizing the sector. The challenge, however, will be balancing increased domestic consumption with pressure on Pakistan’s external accounts, which remain vulnerable to rising imports of raw materials.
If sustained, the government’s policy mix and infrastructure push could mark a turning point for an industry that has been in survival mode for years.
