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Iran's MSC in the Vanguard of Regional Steelmaking

Domestic Economy Desk
Isfahan-based Mobarakeh Steel Company is world's 10th biggest producer of steel, and number one in Iran and the Middle East & North Africa region, accounting for half of the domestic output. The company is also the world’s biggest producer of direct-redu
Iran's MSC in the Vanguard of Regional SteelmakingIran's MSC in the Vanguard of Regional Steelmaking

Iran's steel industry has always played a significant role in global, regional and national economies, brining high revenues for countries and helping build strong economies with sustainable growth. 
Yet, according to a board member of Iran's biggest steelmaker, Bahman Ayyarrezaei, one of most important challenges facing the global steel industry today is the high production capacity surplus to low consumption. 
Ayyarrezaei has over 30 years of experience in Iran's steel industry, having served as chief executives of major steel/mining companies and advisor to the Ministry of Industries, Mining and Trade as well as the Industries and Mines Commission of the Iranian Parliament.
"Global steel production currently revolves around 1.67 billion tons while the real production capacity exceeds 2 billion tons," he told Financial Tribune in an exclusive interview.
Developing countries have been investing more in the steel industry, which will eventually lead to an increase in production capacity. Accordingly, the increase in capacity is not in proportion with the increase in real production, he added.

The Iranian steel industry has a 7.5% share in the country’s job market. In addition, 11% of industrial export earnings belong to this industry

 

Environmental concerns are another issue the steel industry is dealing with. Many steel producing companies are still dealing with environmental issues and those who have managed to solve these issues have paid enormous costs, which inevitably affects end prices.
Concerns over slowing global economic growth have raised concerns for the steel industry as well. Naturally, if global economic growth is jeopardized, steel industry will be harmed as well.
Emergence of alternatives to steel is also another big thread facing the industry, the expert told us. 
For instance, American automotive and energy company Tesla is establishing a car manufacturing company to depend heavily on aluminum for the production of different parts. If their plans become operational or other companies find alternatives to steel products, local steel industries will face a serious threat.
According to the latest report of World Steel Association, a total of 1.5 billion tons of steel were produced in the world during the first 10 months of 2018, up 4.7% compared with last year’s corresponding period. Global steel output stood at 156.58 million tons in October, indicating a 5.8% increase YOY. China was the world’s largest with 782.45 million tons of steel output, up 6.4% YOY. Chinese steel production hit 82.55 million tons in October to rise 9.1% YOY.

 

Domestic Challenges 

Irregular trends in demand are a major problem in the Iranian steel industry. Demand fluctuates widely because economic growth is not regular in the country, Ayyarrezaei says.
He referred to deficiencies in certain parts of steel production chain as well as lack of variety in the range of steel products manufactured in the country as other problems. 
He also criticized the improper location of sites for the establishment of plants in Iran, saying many plants are located in areas where access to electricity, water, gas and proper transportation infrastructure is limited.
“Facing shortage of iron ore once the ongoing projects are completed is yet another major concern. Not only will we have to stop exporting iron ore [in the future], but we will also have to import it,” he said.

The expert went on to outline other challenges facing Iran's steel industry as follows:

  • Shortage of electrodes and ineffective ways to provide them for electric arc furnaces due to sanctions,
  • Price controls,
  • Increasing production costs, and
  • Mismanagement. 

Iran has been ranked the world’s 11th biggest steel producer during the period under Worldsteel's review (January-October). The country is placed between Italy (10th) with 20.61 million tons and Taiwan (12th) with 19.24 million tons.
Iranian steel mills produced a total of 20.6 million tons of crude steel during the 10 months, up 19% compared with last year’s corresponding period. Iran’s October steel output grew 10.6% year-on-year to hit 2.07 million tons, the Brussels-based international trade body for the iron and steel industry said in its latest report.
The report shows global direct-reduced iron output increased 6.9% year-on-year to 6.87 million tons in October.
Production for the 10 months grew 11.8% year-on-year to 69.43 million tons.
Iran was the second biggest producer with 2.11 million tons of DRI production in October and 20.59 million tons during the first 10 months of 2018.
India, Iran's primary rival in DRI output, increased its 10-month production by 4.4% YOY to 25.46 million tons.

 

Iranian Steel Industry Overview

Ayyarrezaei explained that Iran’s steel production capacity currently stands at around 34 million tons. This is while the country plans to increase it to 55 million tons by the fiscal 2025-26 and have 20 million tons of exports when the capacity is realized.
This is while Iran’s steel production is predicted to reach 24 million tons by the yearend (March 2019), he said.
According to the Iranian Steel Producers Association's latest report, Iranian steelmakers produced a total of 26.79 million tons of products during the first seven months of the current fiscal year (March 21-Oct. 22) to register a 13.7% growth compared with last year’s corresponding period. Semi-finished steel made up 14.45 million tons of the total output, up 18% YOY.
Exports stood at 4.73 million tons to register a 12.65% year-on-year growth, as imports hovered around 660,000 tons, down 46.43% YOY.
According to ISPA, Iran's apparent steel usage—defined as production plus imports minus exports, sometimes also adjusted for changes in inventories—stood at 11.36 million tons for semis, growing 30%; and hit 11.35 million for finished products to drop 4% YOY.
“The Iranian steel industry has a 7.5% share in the country’s job market. In addition, 11% of industrial export earnings belong to this industry," Ayyarrezaei said, adding that the Iranian steel industry accounts for 10% of domestic industrial production.
However, he noted that many steel production units are operating below capacity, which is unprofitable. 
“These units should be merged with others or be completely shut down if they are not really producing any value added. This has been the case in many other parts of the world. They (failing plants) have either merged, or shut down or changed their technology.” 

 

MSC at the Forefront

Mobarakeh Steel Company has a remarkable share of 50% in Iran’s steel production. The company is the number one steel producer in Iran and the Middle East & North Africa region.
“Mobarakeh has witnessed 11% growth in sales, 12% rise in production and a 46% increase in revenues in the past six months,” he said.
The steel industry expert added that MSC, along with its subsidiaries Saba and Hormozgan Steel Company, is expected to produce 400 trillion rials ($3.77 billion) worth of steel products by the end of the current fiscal (March 2019).
Mobarakeh is targeting to increase its production to 25 million tons by the fiscal 2025-26 by establishing new steelmaking plants near Iran's southern coasts.
“Europe, Southeast Asia, Middle East and North Africa are Mobarakeh’s main export destinations,” Ayyarrezaei noted.
According to the MSC official, human resources productivity in the company, which stood at 393 tons per person in the fiscal 2012-13 rose to 541 tons/person last year (ended March 20, 2018) and to 610 tons/person this year. 
These figures are close to global averages now, he added.
MSC’s profit margin stood at 38% last year, Ayyarrezaei said, which is well above the average 17% for Iranian steelmakers.
According to CRU Group—leading provider of analysis, prices and consulting in the mining, metals and fertilizer markets—MSC is currently the number one steelmaker in terms of cumulative production in the world.
Mobarakeh is also the world’s biggest producer of direct-reduced iron.
The company was ranked 10th biggest steel company in the world as of March 2016 by World Steel Dynamics—the steel industry's strategic information service provider and publisher of regular analytic reports on steel prices, steelmakers' costs, steel supply/demand and steel finances.
MSC was also among the winners of 'The Most Admired Knowledge Enterprises' (MAKE) award and was ranked 11th among top knowledge-based companies in Asia in 2017 by MAKE. 
Inaugurated in 1998, the MAKE Award is presented by British independent research company in knowledge management and intellectual capital areas, Teleos, which seeks to recognize organizations that outperform their peers in creating shareholder's wealth by transforming tacit and explicit enterprise knowledge and intellectual capital into superior products/services/solutions. 
Winners of the Global MAKE Award are selected by an expert panel comprising of business executives from Fortune 500 companies, leading knowledge-management practitioners as well as intellectual capital experts.

We currently use 2.7 cubic meters of water to produce each ton of steel which makes us the world’s number one low water-consuming steelmaker. This is while the average in Iran is around 6 cubic meters

MSC's performance was evaluated as highly successful, especially in two areas among the eight criteria of the Global MAKE Award in that the company earned the first place in Asia in leadership in interactive atmosphere for knowledge sharing and earned the second place in organization knowledge-based culture. 
In the overall eight criteria, MSC had very close competition with other top Asian knowledge-based organizations such as Tata, LG, Samsung, Beijing Capital and Toyota, earning the 11th place.
Citing latest statistics, Ayyarrezaei said MSC production stood at 4.74 million tons during the first half of the current fiscal (March 21- Sept. 22).
Water consumption in MSC has decreased noticeably over the years in that required water stood at 40 million cubic meters per year in the fiscal March 1991-92. Having invested in water purification and water reclamation in production lines, the consumption has decreased by 84% in the current fiscal. 
Ayyarrezaei expects the figure to reduce to 18 million cubic meters in the current year.
“We currently use 2.7 cubic meters of water to produce each ton of steel which makes us the world’s number one low water-consuming steelmaker. This is while the average in Iran is around 6 cubic meters,” he said. 
According to the Iranian Mines and Mining Industries Development and Renovation Organization’s latest report, 13.06 million tons of slab, bloom, billet and ingots were produced in Iran during the first eight months of the current fiscal year (March 21-Nov. 21), marking a rise of 11% YOY. 
Mobarakeh Steel Company, along with its subsidiaries Saba and Hormozgan Steel, was the biggest producer with 6.31 million tons.
The production of direct-reduced iron stood at 16.51 million tons during the eight months under review, up 25% YOY. Mobarakeh had the lion’s share with 4.89 million tons.
MSC was the second top producer of pellet in the country. Pellet output hit 27.47 million tons, up 32% YOY. Golgohar was the largest producer with 7.99 million tons, followed by Mobarakeh Steel Company with 5.11 million tons.

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