Iran is expected to witness significant expansion in its pelletizing capacity in the coming years as local steel mills strive to balance their existing production chains, feed new DRI (direct reduced iron) plants and increase their cost advantage. However, success will depend largely on the situation in the steelmaking segment, according to Metal Expert – a Ukraine-based provider of news and analysis on for steel products and steelmaking raw materials industries.
Direct reduced pellets serve as the main feed for Iran’s mills as the Iranian steel industry is chiefly DRI-based. So far the country has not had sufficient pelletizing capacity and thus the need for imports. Several large steelmakers, like Mobarakeh Steel Company (MSC) and Khouzestan Steel Company (KSC), have their own pelletizing plants. Still, their capacities are not sufficient and together with other mills they purchase pellets either from the local market or import. The imports are mainly from India and Oman.
Demand for pellets in Iran is estimated at 28-29 million tons a year, while domestic production is around 21 million tons, according to the Iranian Iron Ore Producers and Exporters Association (IROPEX).
“The production of pellets in Iran is not sufficient,” Keyvan Jafari Tehrani, IROPEX head of international affairs, has been quoted by Reuters as saying.
Iran now has the capacity to produce 27 million tons of pellets. In 2016-2017 this figure is expected to increase to 63 million tons. DRI capacity stands at 27 million tons and will expand to 43 million tons. The production chain will become more or less balanced, considering that average proportion of pellet consumption to produce DRI is 1:1.45.
It should be noted that 75% of new pelletizing projects belong to large steelmaking companies such as MSC, Middle East Mines Industries Development Holding Company (MIDHCO), Kaveh Pars Mining Industries, Pasargad Steel Complex (PASCO), Iranian Mines and Mining Industries Development and Renovation (IMIDRO) and others planning to be self-sufficient in raw materials.
The remaining 25% will cover the needs of the free market. Nevertheless, some producers, who do not have their own iron ore processing plants, may have to import pellets, but the volumes will be rather insignificant.
Bold Targets
So far, Iran’s steel output has shown modest positive dynamics (+5.2% y-o-y to 8.8 million tons over H1 2016) and market insiders doubt that under the current conditions in the domestic and global market the country will be able to reach its ambitious targets (55 million tons in steel production capacity by 2025).
This is while, according to the Ministry of Industries, Mining and Trade, so far only half the target has been realized. This gives rise to the notion that part of the new pelletizing capacity will remain underutilized. Exports could be one of the options, especially in the Middle East and North Africa (MENA) market, considering high premiums for pellets there.
“After Samarco’s outage last year, pellet supply has tightened in the Middle East, which helped the prices soar,” a seller of DR pellets told Metal Expert.
Brazilian mining company Samarco, founded in 1977, was a major producer of iron ore pellet before it was suspended by the Brazilian government on November 5, 2015 after two dams owned by company that contained by-products of iron mining collapsed.
The disaster caused many casualties in the surrounding districts with the mix of contaminated water and mud flowing into nearby rivers. It was billed as the biggest environmental accident in the history of the region.
The Iranian government recently announced plans to ban exports of raw iron ore by the end of H1 of the next Iranian year (August 22, 2017) with the aim to increase supply in the local market and meet the needs of domestic steel mills. This may open the door for exports of treated raw materials, pellets in particular, taking into account the large-scale processing capacity expansion. Despite that, Iran’s export potential in this segment remains questionable due to the transportation factor. For example, Sangan Mine, which hosts MSC, KSC, IMIDRO and some private projects is located in the northeast of the country, far from the main export ports.
“Sangan is not intending to export iron ore because of transportation costs of $25/ton from the mine to the ports in the south,” according to Ali Sedighifar, managing director of Sangan Iron Ore Complex (SIOC).
