Pakistan Steel Mills (PSM) and the Government Trading Corporation (GTC) of Iran have agreed in principle to a barter trade arrangement.

Both enterprises have found it difficult to transact on a letter of credit (L/C) basis and are looking to the barter agreement as a means of survival.

Bartered goods

Under the agreement, PSM will import iron ore from Iran against exports of wheat to the neighbouring country according to the chief executive officer of PSM, Major General Muhammad Javed, who expects barter trading to start in the next few weeks.

Iran has long supplied PSM with iron ore, but has been unable to do so since additional US sanctions on Iran imposed in June 2012 have made L/C transactions impossible.

L/C difficulties

PSM requires around 1.4 million tons of iron ore a year to survive, but has anyhow found it difficult to raise L/Cs, even before sanctions were imposed on transactions with Iran.

The steel producer has historically struggled to finance production, and has often not been able to purchase iron ore because commercial banks would not provide it with the L/Cs it needed.

The banks were unable to open L/Cs under State Bank of Pakistan rules because PSM's total equity was at insufficient levels (DC World News, 10 June 2010).

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