The Ministry of Industries, Mining and Trade’s recent decision to levy customs duties on the export of a wide range of mineral products has drawn criticism among exporters.
The duties, communicated on April 9 to take effect in the new fiscal year (started March 21), will be imposed on the export of all products along the steel production chain from iron ore to steel ingots and downstream products, as well as base metals such as copper, aluminum and zinc from concentrates to the metal and downstream products, petrochemicals, chemicals, glass, clinker, cement and all kinds of ferroalloys.
The rate of duties is progressive in nature, meaning they increase as the export volume rises.
The customs duty on steel ingot is set at 17% that amounts to $122.4 per ton. Given the rise in raw material prices, transportation fees, labor wages and energy costs, the figure exceeds steel companies’ profit margin, the Persian daily Jahan-e Sanat reported.
Lost Opportunity in Replacing Russia, Ukraine Exports
The decision made by the government will inflict hefty losses on investors and shareholders in the steel industry, according to a member of the board of directors at Iran’s Steel Producers Association.
“The Industries Ministry’s new measure to impose customs duties on the export of steel industry’s downstream products like ingots and reinforcement bars is a big mistake. The war between Ukraine and Russia has created a vacuum in the export of these products,” Reza Shahrestani added.
“Now is the time for Iranian steel and mineral products to use this absence and find new markets across the globe. It is unfortunate that the government comes up with such ways of gaining revenues, when it can increase foreign currency earnings by boosting exports.”
Anoush Roham, secretary of Pipe and Profile Producers Syndicate, echoed the same concern and said now that Russia has been sanctioned, it has lost its international markets for many commodities and for the same reason global prices have gone up.
“It was estimated at the beginning of the war that demand for Iranian commodities will increase and replace those of Russian and Ukrainian origin. Therefore, the Industries Ministry decided to set customs duties on the exports of some goods to be able to manage the situation and prevent supply shortage in the domestic market. But there are many faults in the regulation, which shows the decision is not quite thoughtful,” Roham said.
The official noted that prior to this decision, customs duties were only imposed on the exports of upstream products, that is unprocessed materials and not on products near the end of the steel production chain, those in the downstream industries with value added.
“The private sector has tried hard to secure footholds in foreign markets over the past years and these overnight decisions ruin all our efforts. Today, we are shocked by the new measure. Wouldn’t it be better if the government had held meetings with local producers and come up with plans on how to support downstream industries that have surplus production and export capacities? Why lose the rare opportunity that can create wealth?”
Roham added that steel industry associations and unions are ready to sit with Industries Ministry officials and survey the many ways the two parties can secure Iran’s national interest and at the same time, make better use of opportunities arising in global markets, especially during these difficult times of economic sanctions.
Karim Rahimi, a member of the board at Iranian Steel Rolling Association, says after oil, gas and petrochemicals, the steel sector brings the most foreign currency into the country.
“I believe that the government’s decision was aimed at controlling local prices. But there are better ways to do so, which are less detrimental to the steel sector. One way is to provide raw materials like sheets to the industry and another way is to manage Iran Mercantile Exchange and make prices real,” he said.
Domestic Steel Supply Twice as Much as Demand
Mohammad Reza Jourabchi, a mineral sector analyst, says such decisions are usually made in the name of market regulation and meeting domestic demand.
“State officials, more often than not, take such measures in the face of high inflation and forex rate fluctuations. This time the government needed to secure revenues for itself by claiming a share from steel exports,” he said.
Production, he added, is much more than meeting local demand and a large portion of steel products have no customers in the domestic market, so what the ministry claims as the reason behind this measure, that is, managing local supply, cannot be true, as the decision goes against market mechanisms and will not reduce prices.
Bahram Sobhani, the head of board at Iran’s Steel Producers Association, voiced his concerns in a letter to Minister of Industries, Mining and Trade Reza Fatemi-Amin.
“Steel industries have managed to make Iran the world’s 10th biggest producer, despite all the imposed restrictions and sanctions. Last year, the industry suffered losses due to gas and electricity shortage but did not, for once, think twice about cooperating with the government. Now, that we have the opportunity to compensate part of these losses, we do not expect the government to step in the way and use the situation to its own benefit,” IRNA reported.
It seems, the official added, that the Market Regulation Headquarters is worried that domestic supply will be hampered if exports increase, yet, the question is why and how has this decision-making body been misinformed about local production and demand?
According to Sobhani, local steel production is currently twice the domestic demand. He noted that the new regulation will have grave repercussions for the stock market where more than 50% of the shares belong to steel, mineral and petrochemical companies.
On April 12, only one day after the announcement of the new measure, the Tehran Stock Exchange index fell by 33,000 points.
Sobhani called for the immediate cancellation of the decision.
Massive Losses for Steelmakers in Summer and Winter
The Ministry of Oil and National Iranian Gas Company put pressure on steelmakers and mining firms to drastically cut gas consumption in winter.
Specifically, Chadormalu Mining and Industrial Company was asked to keep its gas consumption below 30,000 cubic meters per day until further notice.
Since the quota was less than 1% of the heavyweight mining firm’s gas consumption under normal conditions, the restriction practically meant cessation of production in Chadormalu, inflicting huge losses in lost production.
Certain companies were restricted for longer periods, while others were less affected.
Producers of direct-reduced iron were the prime target of restrictions due to their energy-intensive nature. Since DRI is considered a strategic and key product in the steel industry, the measure impacted the entire steel production chain and led to a decline in output of steel products and rising prices.
With the decline in temperature across Iran, gas consumption in households set a record high.
This was not the first time that industries, especially steelmakers, faced power restrictions. In the summer of last fiscal year (July 23-Sept. 22, 2021), steel production declined by 40% compared with the previous quarter (March 21-June 22) due to electricity cuts amid record high domestic consumption.
In a letter to the Supreme National Security Council, ISPA put steel mills’ losses due to power outages at $6 billion from the beginning of last Iranian year (March 21, 2021) to Sept. 12.
According to ISPA, 82 days of productions were lost during the period due to power outages and 300,000 direct and indirect employment were lost or restricted, the news portal of the association reported.
Summer demand led to severe power and water shortage in summer in most regions resulting in blackouts and dry taps.
The record came as high temperatures nationwide drove general electricity consumption to new heights in summer, prompting authorities to prioritize domestic users over industries in supplying power.
As the manufacture of steel and related products is an energy-intensive process, steel and cement factories were subsequently restricted by the Iran Power Generation, Distribution and Transmission Company and have been only allowed to work at a fraction of their demand within specified period during the day.
According to the World Steel Association, Iranian steel mills produced a total of 28.5 million tons of crude steel in 2021, registering a 1.8% decline compared with 2020.
Despite the decline in output, Iran maintained its global status as the world’s 10th biggest crude steelmaker.
