Business And Markets

Bright Horizons for Steelmakers

Bright Horizons for Steelmakers Bright Horizons for Steelmakers

The new Iranian year started on March 20 with high hopes of witnessing a thriving domestic steel industry.

The removal of sanctions imposed on Tehran over its nuclear energy program in late 2015, as part of the July 14 nuclear accord struck with six major world powers, has led many steelmakers to believe that the prospective inflow of foreign investments into the country, the expected revitalization of the construction sector and a hike in steel import tariffs promised by officials can erase the unfavorable memories of the past year.

The global outlook also appears promising. Experts believe that the recovering oil prices and the shift in China’s economic policies toward re-bolstering its construction sector can help steel and iron ore prices rebound from their 2015 lows.

  Domestic Factors

According to Mohammad Baqer Nobakht, the government’s spokesman, over $16 billion have been allocated by the government to implement construction projects in the country during the new Iranian year (started March 20), our sister publication Donya-e-Eqtesad reported.

This is while the previous year saw the realization of less than half of the approved $13.4 billion construction budget. This shortage resulted in the abandoning of nearly 3,000 projects and a significant drop in domestic demand for construction materials, including steel products.

The government’s promises for revving up the construction sector has renewed interest in abandoned projects by steelmakers who view it as a sign of improvement for the steel industry.

Even if last year’s scenario is repeated, experts believe that foreign investors and the domestic private sector can inject the needed finance into projects and boost demand in the local market.

In order to truly get off the ground, however, the market needs to be protected from cheaper foreign offerings by bolstering the import tariff bulwark.

Many European countries, including Turkey, raised tariffs on steel products, especially from China, by up to 40% in 2015. The United States slapped a 236% tariff on Chinese imports.

Iran, on the other hand, augmented tariffs on billets by 10%, sheets by 15% and rebars and beams by 20%, which are regarded by experts as a far cry from the commitment the industrialists expected from the government.

According to remarks made last year by top officials from the Ministry of Industries, it appears that the government is set to play a more forceful hand in setting the tariff rates in the new year.

“The government intends to support the domestic steel industry by increasing import tariffs during the new Iranian year,” said Mehdi Karbasian, deputy minister of industries, mining and trade in March.

Karbasian emphasized that new import tariff rates “have been finalized” and need only to be approved by the government. The definite rates have not yet been made public.

  Global Factors

According to Bloomberg, oil prices have recovered by about 50% from the 12-year low reached in January as Saudi Arabia and Russia led the tentative agreement to freeze production to boost prices.

The two countries, along with most OPEC members and some others outside the group, are due to meet in Doha, Qatar, on April 17 to finalize the pact.

Global steel demand is also set to pick up, as China cuts down its production capacities and boosts domestic demand.

World Steel Association’s forecasts indicate that global steel demand in 2016 will grow by 0.7% to reach 1.52 billion tons—a considerable gain compared to the -1.5% rate of 2015.

China’s steel demand is also expected to improve in 2016 from last year’s -3.5% to -2%. Furthermore, demand in emerging economies and developing countries is expected to rise 3.8%, creating potential markets for exports.

  ‘The Year of Steel’

The new Iranian year will be “the year of steel”, says Reza Zaer-Heydari, a steel industry expert and market analyst.

“Many construction projects are set to be launched, especially to develop domestic industrial infrastructures,” he said, adding that developing the country’s ports, airports and railroads will generate considerable demand for steel products.

According to Zaer-Heydari, the energy industry can be the main sector to help the steel industry grow, as “it requires special, high value added steel products”, which will in turn boost demand.

“Iran has the world’s largest gas reserves and it has the potential to become one of the main energy terminals around the world. Achieving that requires a large amount of long pipes, which are made entirely out of steel sheets.”