Domestic Economy

Iran Steel Industry’s Great Expectations

Business & Markets Desk
Iran Steel Industry’s Great Expectations
Iran Steel Industry’s Great Expectations

Diana Kinch, senior editor of Steel Business Briefing, a subsidiary of Platts, interviewed Alireza Bakhtiari, the managing director of Financial Tribune and its sister publication, the Persian daily Donya-e-Eqtesad, at the newspaper’s office in Tehran on Sunday.

The interview focused on the inauguration of the Sixth Iran Steel Market Conference, which opens today in Tehran, and the general outlook of Iran’s steel and mining sectors and its economic climate.

Platts is the London-based provider of energy and metals information and a source of benchmark price assessments in the energy markets.

Kinch, a steel market analyst, is among keynote speakers at the two-day ISMC 2016, which is hosted by Donya-e-Eqtesad.

A steel industry heavyweight, Bakhtiari has a long record of managerial posts under his belt, prior to founding Donya-e-Eqtesad in 2002 and Financial Tribune in 2014.  He has served in various positions in state bodies, including the Ministry of Industries, Mining and Trade; Iranian Mines and Mining Industries Development and Renovation Organization; and Esfahan Steel Company—Iran’s third biggest steel producer.

Excerpts of the interview follow:

  KINCH: How do you see the outlook for Iran’s steel industry? I understand you have an enormous expansion program in order: Annual production of 55 million tons of steel by 2025, based on the 20-Year Vision Plan. Do you think it will succeed?

BAKHTIARI: It is a tough target to achieve. What analysts believe 45 million tons are the maximum we can aim for, provided we are able to generate demand and stimulate the market.

What makes things more complicated is that you have a country like China in the equation. The Chinese export more than 100 million tons of steel per year, effectively dumping them in the global markets. Competing in such a climate is not easy.

  What do you expect from the domestic market in Iran? Is the construction sector going to grow? What is the annual growth rate going to be in 2016?

Our economy is just coming out of a recession. In fact, up until two years ago, it was shrinking and last year it managed to grow by 1%. The growth rate we expect to achieve by the end of the current Iranian year, which ends on March 19, is estimated at about 3%.

It is noteworthy that Iran has huge untapped potential in its mining sector which, if exploited, can give a major boost to the economy.

Furthermore, Iran’s strategic geopolitical location provides it with great advantages. It is surrounded by the Commonwealth of Independent States to the north, Turkey and Iraq to the west, Arab states in the Persian Gulf to the south; and Pakistan and Afghanistan to the east. This provides potential investors with a guaranteed access to huge markets in the region.

With all that potential and the lifting of sanctions against Iran over its nuclear program, I believe Iran’s future looks bright. Even reaching double digit economic growth is not hard to imagine.

In line with the expected economic growth, we believe the construction sector and domestic steel demand will grow.

 Do you think Iran can be a competitive producer of steel? Do you think it has the infrastructure to do so?

Iran’s economic policies are moving toward empowering the private sector, which is in turn a prerequisite for growth and development. The more powerful the private sector becomes, the more competent we will be in international markets.

However, if the government gets excessively involved in the sector, there will be no room for growth. That is why the Iranian government has decided to allow the private sector to assume a more prominent role in expanding and developing this specific sector.

  Are there any restrictions on foreign investments in Iran?

There are no restrictions. We have come up with a set of guidelines that potential investors need to comply with. We are also preparing to grant them loans.

Despite the false image of Iran being a difficult place for investment, one needs to bear in mind that the country is the most politically stable in the region.

  Do you think that this image will change now that the economic sanctions are lifted?

I believe it is already changing. People from all over the world are visiting Iran more often, meaning that they are prepared to change this image. In fact, they want the image to change as much as we do.

However, building is by nature much more difficult than destroying. Therefore, it is going to take a while for things to change.

  How much of the steel production do you think will go to the domestic market and how much abroad?

Iran’s steel consumption, back when the construction sector was thriving, was about 25 to 27 million tons per year. The output exceeding this figure will be exported.

However, due to outgoing recession, current demand is way less than that figure.

Imports are also dropping, as some 4 million tons of steel have been imported this [Iranian] year. Last year’s imports stood at 10 million tons

  Would the expansion program contain money from domestic investors or foreign finance?

Without foreign investment, this development will hardly take place. We do definitely need it. What is more important though is that the Iranian private sector will be at the forefront of the upcoming developments, including expansion of exports.

Perhaps more important than finance is that that the private sector needs to cut down on production costs to become competitive in international markets.

For instance, one of the main issues our steelmakers are grappling with is the excessive number of employees in the sector, owing to the governmental background of the Iranian industry. This needs to change in order to become more competitive.

  Do you think China is going to become a big investor in Iran? Is it going to be dominant in any way?

China is naturally going to try to gain a foothold in Iran. But this will be definitely harder for the Chinese now, due to the tightening competition from other countries. If they want to stay now, they have to up their game and improve the quality of their products, or they will lose their share.

This is especially important, as Iranians are more drawn to quality products and top brands, which make things harder for China.

  However, you have high import duties on certain products. Do you think Iran is a protectionist country, or is it easy to import?

This is because we cannot just simply break down tariffs for everyone and remove import duties altogether. This has to take place over time for all sides to benefit.

After all, we need to support our domestic producers who manufacture quality goods.