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S. Korea, Iran’s Major Partner in Wide-Ranging Sectors
Domestic Economy

S. Korea, Iran’s Major Partner in Wide-Ranging Sectors

This February South Korea’s POSCO signed a memorandum of understanding with Iranian Pars Kohan Diyar Parsian Steel Complex (PKP) for cooperation in the construction of a 1.6-million-ton steelmaking plant aimed to produce value-added flat steel.
Within the framework of this agreement POSCO is to supply its FINEX technology, which allows significant costs reduction through the use of iron ore fines and non-coking coal avoiding agglomeration and coking operations. POSCO will own 8% of PKP.
This, however, will not be the only steel project where POSCO plans to participate. The company reached an agreement worth €1 billion that will spread in Iran its FINEX and Compact Endless Cast and Rolling Mill (CEM) technologies, Metal Expert, a Ukraine-based provider of news and analysis on steel products and steelmaking raw materials industries, wrote in a recent report dubbed “Iran in Focus”.
Based on this business model, POSCO will collect royalties from steelmakers using their technologies, as well as part of the revenue from orders won by producers using their management systems. The company also expects to profit by dispatching its engineers to overseas facilities. This will help the company maintain the share in Iranian steel market, as the country aims to reduce import by imposing higher tariffs for making Iran self-sufficient in steel.
In 2012, Iran’s steel import from South Korea totaled 1.1 million tons, while this year it dropped to around 600,000 tons.
Despite the fact that the Iranian steel market is narrowing for foreign suppliers, South Korea will still benefit from this cooperation via such steel-consuming industries as ship and railbus building, automotive sector and home appliances.
Over the years of sanction, the infrastructure and technologies in Iran have become outdated, which makes it a blank space among today’s saturated global markets.   

 Logistics, Marine Industries
South Korea has expressed readiness to invest in Iran’s fast-growing logistics and shipbuilding industry as well as ports. The volume of South Korea’s investment in such areas is expected to rise to $10 billion within five years.
At the end of April, Daewoo Shipbuilding & Marine Engineering confirmed to local press that it is in negotiations with an Iranian customer for offshore plant orders.
Hyundai Heavy Industries is also in talks to build three 14,500 TEU container ships for IRISL, while the latter is also negotiating with SPP Shipbuilding for tanker orders.
In late February, an MoU was signed by Islamic Republic of Iran Railways, Korean Hyundai-Rotem and Japanese Marubeni companies. According to the agreement, 150 railbuses worth $260 million will be manufactured based on finance credit acceptable to the Central Bank of Iran and the Ministry of Economy, which will be opened by the Hyundai-Rotem Company.
The Hyundai-Rotem had already signed the contract for joint manufacturing of another 150 railbuses with Iranian Rail Industries Development Company. So far, 17 of them have been delivered to Iran and put into use in the country’s railroads network. Besides, South Korean Daelim is expected to become one of the contractors for the construction of railroad in Isfahan Province.

  President Park’s Landmark Visit
South Korean President Park Geun-hye paid a landmark state visit to Tehran in early May focused on boosting bilateral economic cooperation. The visit–the first by a South Korean president in more than half a century–represented South Korea’s efforts to tap into business opportunities in Iran.
“I believe Iran can become a land of opportunity for many South Korean firms,” Park told reporters on a plane back to Seoul.
During her visit, the two countries signed dozens of preliminary deals that could lead to contracts worth tens of billions of dollars. Seoul hopes the signed memoranda of understanding could pave the way for South Korean companies to eventually win massive infrastructure projects underway in Iran.
South Korea’s presidential office has described the MoUs as the “biggest-ever economic accomplishment”.
The Korea Electric Power Corporation opened an office in Tehran with a visit by Kepco CEO Cho Hwan-eik, one of the 236 delegates on the mission.
Kepco signed 10 business agreements, including four major electricity infrastructure projects, with Iranian counterparts such as the Iran Power Generation and Transmission Company. One of the four major projects is to expand the capacity of Iran’s electrical grid to 765 kilovolts.
If Iran decides to install the new network, Kepco will participate in a $5 billion extra-high-voltage electrical grid construction project. Another major project is the introduction of an advanced metering infrastructure, which enables users real-time monitoring of electricity use.
The Korea Shipowners’ Association and Shipping Association of Iran signed a memorandum of understanding to form a taskforce to expand direct shipping lines between Asia and the Middle East. Member companies of the associations will form an alliance.
“We expect the transport of goods between Korea and Iran to rapidly increase,” the Korean association said in a statement.
Incheon International Airport signed a memorandum of understanding with Tehran’s Imam Khomeini International Airport. The two are expected to send delegations on a regular basis to share information on airport operations, aircraft management, development of surrounding infrastructure and co-marketing projects.
Meanwhile, Woori Bank has launched a Tehran office. It is the first Korean bank to set up its office in Iran. After economic sanctions on Iran were lifted in January, Woori Bank sent experts to research the Iranian market and attained approval from the Central Bank of Iran on April 12 to open an office in Tehran. The Tehran office is not capable of banking operations.
The office will collect market information and connect already established branches of Woori Bank in the UAE and Bahrain. The bank also signed a business partnership with Pasargad, the second-largest bank in Iran, to boost Korea-Iran trade, share information about local markets and provide financial services.

  Cooperation in Auto Sector
Automotive industry is also one of the prospective points of cooperation for both countries. Currently, there are no joint ventures between Iran and South Korea for automobile manufacturing. Nevertheless, Korean producers do not exclude the possibility of establishing auto manufacturing plants, considering the potential of Iranian market. According to Islamic Azad University’s research, Iranian car production dropped by around 40% during the period of sanctions. Their removal will lead to the recovery and growth of the industry, providing favorable conditions for steel consumption.
Iranian automotive industry used to cover most of its steel needs with South Korean material. Pending the new protective measures against imported steel, it is likely that trade cooperation between the countries will shrink and turn to technologies transfer and investments.
In fact, South Korea plans to use the potential of Iranian market in terms of automobile export, which will lend support to Korean steelmakers, Hyundai in particular, which supplies steel to its subsidiaries Hyundai Motor and Kia Motors.
“The group has increased its sales target by 240% [to 60,000 units] from 25,000 cars sold to Iran in 2014,” Hyundai Motor CEO Jeong Jin-hang was quoted as saying by The Korea Herald.

  Home Appliance Partnership
Last but not least, home appliance is an important segment. Over the years of sanction, Iran has become starved of new technologies and now needs modern electronics at reasonable prices.
This again clears two possible paths for Korean producers. First is to export finished appliances made from local steel, second–to establish joint ventures. The latter, however, will depend on the incentives Iranian government is ready to give.
In January 2016, LG Electronics announced plans for the establishment of a large production plant in Tehran. According to industry sources, the plant is expected to produce over 500,000 TVs with the same number of refrigerators and washing machines.
“We will make a final decision after seeing what kind of protections the Iranian government will adopt for foreign investors,” an official from LG Electronics said.
To provide financial support to numerous bold plans, central banks of both countries are in discussion to enhance banking cooperation, open line credit facilities and establish a mechanism to clear mutual debts.
Moreover, since both sides understand that economic recovery of Iran will take time, South Korea agreed to provide comfortable terms of payment for the country.
“To promote trade and investment, Seoul is committed to maintaining the current Korean-won based settlement of accounts system while adding other forms of exchange using different foreign currencies,” South Korean Minister of Trade, Industry and Energy Joo Hyung-hwan told local press. “The euro and Japanese yen can be used in tandem with the won to settle accounts,” he said.

 

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