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Global Steel Players Survey Industry Outlook

Business & Markets Desk
Global Steel Players  Survey Industry Outlook
Global Steel Players  Survey Industry Outlook

The Sixth Iranian Steel Market Conference opened in Tehran on Tuesday with steel giants from across the world and Iran's key industrial players in attendance.

The participants addressed the causes of the current recession in the foreign and domestic steel markets, apart from discussing the potential of Iran’s steel industry in becoming the rising star in the global arena, post-sanctions.

Hosted by Financial Tribune’s sister newspaper, the Persian economic daily Donya-e-Eqtesad, the conference featured keynote foreign speakers, such as Peter F. Marcus, managing partner and founder of World Steel Dynamics steel information and analytics service; Gianpietro Benedetti, chairman and CEO of the Italian Danieli Group; Yang Zunqing, deputy chairman of China Iron and Steel Association; Burkhard Dahmen, CEO of German SMS Group; Roland Kristl, managing director of Austria’s INTECO; and Elias Gonzalez Gil, chief executive director of Spanish GRUPO SARRALLE.

> Boom-Recession Cycle

The opening speech was given by Mostafa Moazzenzadeh, advisor to Iran's First Vice President Es'haq Jahangiri, who said the challenges currently facing by the steel industry have resulted mostly from the “unfavorable global economic and political conditions.”

"Historically, there has always been a boom period following a deep recession; now the stage is set for moving out of the current recession,” he said.

According to Moazzenzadeh, the steel industry’s current plight can be analyzed on three different fronts: global, domestic and at the level of manufacturing companies.

On the global front, a myriad of unfavorable factors have affected the industry. The high production capacities, combined with dwindling demand, have caused manufacturing volume to outpace the actual amount buyers require, disturbing the global market balance.

This is while producers, in order to maintain a share of the market, have focused heavily on cutting down costs and the final product prices, which have eroded the competitiveness of many steel mills and led them to the verge of bankruptcy.

The dollar’s strengthening pace and the devaluation of most other currencies have also impacted export prices.

> China: Main Culprit

China, the world’s largest steel producer, is the main culprit behind the imbalance in global steel markets.

According to Moazzenzadeh, China exported over 100 million tons of steel in 2015 through unconventional state support and dumping strategies.

"This has led many countries to increase import tariffs in an unprecedented manner to support domestic producers, which isolated certain markets from global trade,” he added.

On the domestic front, the official pointed to the cooling demand in the construction sector, pressure resulting from years of sanctions, rampant imports primarily from China, the government’s intervention in steel value chain pricing and its lack of genuine support for the industry and the relatively high mining royalties as primary reasons hindering the industry from realizing its potential.

Moazzenzadeh added that manufacturers themselves are also to blame for their failure in reducing production costs during the steel market’s boom period and focusing solely on increasing production volume.

He concluded his speech on a positive note, forecasting that global steel demand will pick up again, stressing that Iran in the post-sanctions era should prepare itself for the boom period by establishing more steel mills using the abundant cheap resources at its disposal.

> Post-Sanction Opportunities, Objectives

The positive note was picked up by the next speaker, Mehdi Karbasian, the head of Iranian Mines and Mining Industries Development and Renovation Organization, who emphasized that Iran's steel sector will benefit the most in the post-sanctions era as it has huge potential to attract foreign investors, create jobs and boost the economy.

Karbasian pointed to the government’s plan to become the strongest economy in the region by achieving an 8% annual economic growth by 2025 and said the country needs $250 billion in investment to achieve this target.

Many foreign delegations have visited Iran since the removal of western sanctions imposed on the country over its nuclear energy program as part of the July 14 nuclear deal between Tehran and world powers.

Karbasian, who is also deputy minister of industries, mining and trade, said “the sanctions did hurt us, but they also hurt the Europeans, and now they are here for business”.

He believes the improvement expected in the steel industry is going to be slow and gradual, and that the ongoing recession will probably continue in 2016.

"Iran produced about 16 million tons of steel in 2015 and that the output in 2016 will most likely remain the same," he said.

Peter F. Marcus, managing partner at World Steel Association, was the next speaker at the conference. He is a senior steel market analyst with more than 55 years of experience under his belt.

According to Marcus, 2016 is not going to be a prosperous year for the steel industry, as there is a long list of negatives, many of which have continued since 2015.

“There is currently an extended pricing death spiral condition which started at about 2014,” he said, adding that this is the first time a downtrend in steel prices has continued for so long and dropped so rapidly.

He also emphasized that “steel production is currently far too sticky on the downside”, and is unlikely to rise, as global steel output in China and elsewhere has headed down.

Marcus believes that the “Chinese Steel Armada” is not yet defeated, with the country "exporting hot rolled bands at $50 per ton below their marginal cost”.

China’s huge market has caused steel export prices to strongly impact prices in most markets, with many steel mills around the world forced to file for bankruptcy.

The continuing devaluation of Chinese currency versus the dollar “has huge worrisome undercurrents”, he said.

> Improvement in 2017

Marcus predicted that the global steel industry will start to show signs of improvements in 2017.

On the Iranian steel industry’s advantages, he referred to educated workforce, low cost and sizable iron ore reserves, abundant natural gas at a bargain price and good location for export at low cost.

On the downside, he said the industry is outmoded, pellets are of low quality and the same is true about direct-reduced iron.

"The industry suffers from poor utility plants with inadequate fume and water control; Iranian steel mills are tight financially; production costs are way above current world export prices for billet and slab; transportation costs are high and there are not enough railroads; bureaucracy may slow foreign investment; plants have far too many workers, and are not using the latest technology," he said.

According to the WSA official, the last man standing when the global steel crisis finally ends is the one with the regional advantages, low operating costs, high-end product portfolio, technological leadership, sizable deliveries to affiliated downstream outlets, significant trade protection, low energy price, especially that of natural gas, and major capital spending programs.

"The most effective "torpedo" that can boost steel companies all over the world during the current unfavorable conditions is technology," he said.

Marcus noted that in order to succeed, steelmakers must get ready to implement steel industry’s technological revolution, “as steel’s game of war is changing”, and industrialists must determine that “which war are they engaged in: yesterday’s, today’s or tomorrow’s".

The conference will continue on Wednesday for the second and final day. For more information on the conference, you may visit