Economy, Business And Markets

Steel Industry Stagnant

Steel Industry Stagnant
Steel Industry Stagnant

During the first six months of the Iranian calendar year (March 21-September 22), the steel manufacturing sector was plagued by troubles such as increasing downturn in trading and an almost daily decrease in steel prices despite a sharp rise in manufacturing costs.

According to a report by Donyay-e Eqtesad daily, successive blows on the industry such as a 2% rise in value added tax, pushing the VAT up to 8%, an increase of up to 75% in energy prices (caused by implementation of the second phase of the subsidy reform plan) not only failed to push higher the prices of the steel products, but the prices fell with an evident downward trend.

The steel industry’s recession in the past two years could be justified by the negative GDP growth. The disappointing fact, however, is that achieving the positive GDP in 2014 has not yet generated positive signals for the domestic steel manufacturers. Although steel exporters have fully resumed their work, manufacturers have not managed to find stable and reliable markets for their products, only managing to spot Iraq and Afghanistan as their main destinations for the time being.

Over 50% of Iran’s steel output is consumed by domestic industries, while 20% is consumed in development projects such as roads, railway, and dam construction, while 30% is normally used in housing and other construction projects. But the lack of state budget allocation has stopped many development projects and only those with more than 80% of progress received sufficient financial resources to be completed. On the other hand, an unprecedented recession in housing and construction market adversely affected steel consumption in the sector.

All these factors caused a significant decrease in the production of manufacturing units, most of whom produce rebar.

Considering the fact that during the next six months, the market would almost certainly face further decline in demand -- due to cold weather and decreased construction, it can be predicted that steel manufacturers should brace for another six-month period of stagnation. At the same time, the industry must wait and see how much Rouhani administration’s new plans, including the ambitious project of adding 10 million tons to the annual steel output through setting up steel plants along the country’s southern coasts, would help the industry get out of the currently intolerable levels of hardship.

According to the projections in the Fifth Five-year Economic Development Plan (2011-2015), national steel production should reach 55 million tons per annum, which is unlikely to materialize regarding the current production level, which hardly reaches 20 million tons per year.