Electricity supply restrictions imposed on steel plants should be lifted, Rasoul Khalifeh-Soltani, the head of Iran Steel Producers Association, said.
In a letter to the Ministry of Industries, Mining and Trade, Khalifeh-Soltani said, “In the fiscal 2021-22, Iranian steel industry fell short of its target output by 6 million tons, inflicting a loss of $4 billion; restrictions levied on energy supply and power outages were the main reasons behind that loss.”
In the summer of last fiscal year (June 22-Sept. 22, 2021), steel production declined by 40% compared with the previous quarter (March 21-June 21) 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) 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 a severe power and water shortage 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 cement is an energy-intensive process, their factories were restricted by the Iran Power Generation, Distribution and Transmission Company and have been only allowed to work at a fraction of their demand during specified period.
Production Declines
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.
In winter, the Oil Ministry and the National Iranian Gas Company put pressure on steelmakers and mining firms last year to drastically cut their gas consumption in winter.
Specifically, Chadormalu Mining and Industrial Company was asked to keep its gas consumption below 30,000 cubic meters per day. 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 the 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 in the market.
With the decline in temperature across Iran, gas consumption in households set a record high last winter.
“Policymakers were expected to adopt measures to avoid the repeat of last year’s blackouts, but the directives issued by electricity authority imply otherwise. As a result, almost all steel mills, especially those run by the private sector, will be closed for three months,” Khalifeh-Soltani, was quoted as saying by Mehr News Agency.
“The decline in steel production would lead to a fall in output manufactured by downstream industries such as home appliances, pipes and profiles, construction and even automobiles,” he warned.
Bahram Sobhani, the head of the board of directors at Iran Steel Producers Association, had earlier voiced his concerns in a letter to Minister of Industries, Mining and Trade Reza Fatemi-Amin.
“Steel industries have managed to make the country the world’s 10th biggest producer, despite all the restrictions and sanctions. Last year, the industry suffered losses due to gas and electricity shortages, 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,” he was quoted as saying by IRNA.
$150-200 Million in Losses Over Export Duties
The government recently imposed a set of provisional duties on the export of steel as well as other minerals, petrochemicals and agricultural products.
The duties, which were later scrapped, caused losses of between $150-200 million to exporters, according to the executive manager of Steel Producers Union.
“All businesses along the steel production chain have suffered losses, yet no one is answerable,” Vahid Yaqoubi was also quoted as saying by the Persian daily Jahan-e Sanat.
The official noted that since fiscal 2018-19, the steel industry has witnessed a series of inexpert and faulty decisions, as the conditions for exporters worsened alongside the rise in foreign exchange rates over the years.
“The Ministry of Industries, Mining and Trade has been devising different kinds of regulations by issuing directives of all sorts, which last for only one or two months and are then repealed. This has severely damaged the industry,” he added.
Yaqoubi noted that these directives foster rent-seeking practices while helping intermediaries to make the most profit.
“Unfortunately, there is no supervision over the decisions made for the steel industry and when such financial losses are caused, no one accepts responsibility. We in the Steel Producers Union want the Inspectorate Organization of Iran and the prosecutor general to intervene and make clear who is to blame for such heavy losses incurred by the industry,” he said.
“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 their exports of these products. 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 for itself, when it can instead think about how higher exports can boost the foreign currency earnings for the country,” Reza Shahrestani, a member of the board of directors at Iran Steel Producers Association, has been quoted as saying.
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 risen.
“It was estimated at the beginning of the war that demand for Iranian commodities will increase and replace those produce in Russian and Ukrainian. 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 was not quite thoughtful,” he said.
Karim Rahimi, a member of the board of directors at Iranian Steel Rolling Association, says after oil, gas and petrochemicals, the steel sector brings in the most foreign currency to 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 by managing Iran Mercantile Exchange and making prices real,” he said.
