Economy, Business And Markets

Steelmakers Decry Gov’t Failure to Deliver

Steelmakers Decry Gov’t Failure to DeliverSteelmakers Decry Gov’t Failure to Deliver

Implementation of the Privatization Law has highlighted the role of the private sector with numerous comments by the officials who have praised Iran’s private sector and its crucial role in the economy.

But the private sector, especially the industrial sector, has never really been given the value it deserves. The private companies believe government plans are more often than not, limited to slogans and fail to practically and effectively support the private sector. However, the situation has improved to some extent since President Hassan Rouhani took office in 2013.

Responding to the Financial Tribune’s question as to what were the private sector’s expectations from the government, Ali-Mohammad Dehqan, the manager of Palesh Yazd Company said humorously: “We want nothing from the government but to leave us alone and let us mind our business.”

Palesh Yazd is a private steel billets manufacturing plant located near the central city of Yazd which uses scrap iron and sponge iron as its main inputs. The mill currently has a 12-ton induction furnace with annual production rate of 15,000 metric tons of billets. The installation of a new 15-ton induction furnace is expected to increase the plant’s production to 50,000 tons per year. Palesh Yazd also specializes in casting integrated steel parts up to 22 tons in weight.

Ingot producers in the steel sector are faced with numerous problems. They sometimes have to depot up to 50,000 tons of their ingots in light of supply glut and low domestic demand caused by imposition of high tariffs on the export of slabs, blooms, and billets produced from scrap metal. The weak domestic market has also reduced the rolling mills demand for ingots as their main raw material.

Producers also complain of the high tariffs on the export of ingot, which is 70% on export of ingots produced from scrap metal and 30% on export of ingots produced from domestic iron ore.

“The tariffs were introduced nearly twenty years ago, when there were only a few ingot producers in the country. But now, there are hundreds of small and medium-sized private companies producing billets and blooms and they wish to export their products”, Dehqan told the Financial Tribune.

 Positive Shock

What the metal casting companies and private ingot manufacturers are suggesting now is that the government should lift the high export tariffs only for a limited time period – say six months or a year – during which they can export their stocks. This, they say, would give the much-needed positive shock to the market and help them “survive for another five years.”

According to Dehqan, many countries in the region, including Iran’s eastern neighbor Afghanistan, are interested in buying steel ingots from Iran for their rolling mills due to lower transportation costs. But, he says the high tariff rates are the biggest obstacle in the way of exports.

Another concern for the metal casting companies and ingot manufacturers is that the direct-reduced iron (DRI), currently produced by many state-owned and private steel companies, has a waste ratio of nearly 20 percent, while the figure is between 5 to 10 percent for scrap metal. This means that a billet manufacturer needs to buy 1,200 kilogram of DRI to produce 1,000 kilogram of steel billet.

“A few years ago, good quality scrap metal was available in Iran in large quantities. But due to reduction in construction activities across the country, the quality and quantity of scrap metal has reduced”, Dehqan further told the Financial Tribune.

Most steel ingot manufacturers now prefer DRI to scrap metal; but the available DRI, also known as sponge iron, is expensive and has an inferior quality. The casting companies and ingot manufacturers prefer using the DRI, as they say it yields higher-quality steel and generates less pollution compared to the scrap metal.

Infrastructure is a major concern for small private steelmakers. They expect the government to provide them with basic infrastructures such as potable water, electricity, natural gas pipelines and telephone lines.

“When we set up the company five years ago, the electricity department charged us a great deal for an exclusive 3-megawatt line. Now, as we plan to install the new furnace which needs another 3-megawatt power line, we have been asked to pay four times that amount”, said the manager of Palesh Yazd company.

“The telecommunication company in Yazd, the natural gas company, and the water company have so far failed to provide us with the most basic facilities including a telephone line, natural gas pipeline, and drinking water for the 70 workers in the factory”, Dehqan complained.

Steel producers, like other sectors in the steel industry, hope that the Comprehensive Steel Plan, which the ministry of industry, mine, and trade has been bragging about for quite some time, would help solve the steel sector’s problems in the coming years and restore balance in the steel production chain.