Economy, Business And Markets

Iran Boosts Steel Output, Exports

Iran Boosts Steel  Output, Exports
Iran Boosts Steel  Output, Exports

Iran is increasing steel exports and courting foreign investors in an ambitious bid to quadruple steel output exports in a decade to negate the effect of western sanctions and replace at least a small part of the massive revenue it lost due to the embargo on its oil sales, Reuters reported.

As a developing economy heavily reliant on construction, Iran exported an average of 1.35 million tons of steel in 2011 and 2012, according to a presentation by Iran's top steelmaker, Mobarakeh Steel Company.

By contrast it exported 1.26 million tons of steel during the first seven months of this year, data from the Iran Steel Producers Association (ISPA) showed.

"Due to the fast expansion of the local production in recent years, Iran has a surplus of rebars, billets, IPE (I-beams) and other similar sections," said Bahador Ahramian, a member of the ISPA's board.

The bulk of Iran's steel exports go to the Middle East and North Africa, and can involve barter deals or funds deposited in non-western banks to circumvent sanctions.

Iran was never barred from selling steel under sanctions imposed by the United States and the European Union over its nuclear energy program. But financial restrictions banning banks from processing dollar and euro payments for Iran deals have made trade difficult.

Tehran has condemned western sanctions, blamed them for weakening the Iranian currency and shrinking the economy.

The steel sector pales in comparison to oil, one of the main parts of the economy targeted by sanctions.

The value of crude oil sales Iran loses each month from sanctions is estimated at nearly $4 billion. By contrast, Iran's steel exports in July this year would be worth some $6.3 billion, based on current prices.

But Javad Ardalan, director of Iran Trade and Investment, a London-based consultancy with offices in Tehran, said the additional revenue is important, as it insulates the steel sector from sanctions by making it self-sufficient.

"Steel and iron ore is a strategic industry for Iran. If there isn't enough steel in the country, the construction industry will grind to a halt and another 50 or so related industries will be hurt. It will cause huge unemployment," said Ardalan.

Iran produced 10.64 million tons of crude steel in the first eight months of this year, up 6.9 percent in the same period last year and nearly triple the 2.4 percent average global growth rate, data from the World Steel Association shows.

That increase still leaves the country well short of its plan to boost steel output to 55 million tons a year by 2025, of which 10 million tons would be earmarked for export.

"That plan is going under strategic review and will probably have to be adjusted, because of marketing, infrastructure and many other aspects involved," said ISPA's Ahramian.

Industry experts say the target of 55 million tons is vulnerable if Tehran's nuclear negotiations with global powers – known as the P5+1 group – end in stalemate.

Still they concede that even in this worst-case scenario, the steel industry will continue to grow, with its exports adding to the global glut of steel, and helping further depress prices.

Courting Investors

Tehran is determined to bolster the sector. In August, it withdrew the special rate foreign exchange allocation for all steel imports except for flat products in a bid to further boost local production.

In addition, it is courting foreign steelmakers to invest in a host of new steel complexes.

The country signed an agreement with Kuwait Steel in June to build a new complex with 1 million tons of rolling capacity, according to a press statement from Iran's deputy minister of industry, mine and trade, Mehdi Karbasian,

Karbasian also said in a separate statement that up to 37 prominent foreign firms have expressed readiness to cooperate in Iran's mining sector since the summer, although he declined to name them.

For western companies, however, readiness to do business with Iran is still largely contingent upon the success of its nuclear negotiations with the P5+1. German steel mill equipment maker SMS Siemag, for example, told Reuters it is prepared to supply Iranian steel companies, but declined to say whether it is actually doing so at the moment.

For Iran's other trade partners, such as Ukraine, Russia, Turkey, China and South Korea, which never completely stopped supplying steel to Tehran due to sanctions, the country's increasing self sufficiency means, if anything, a loss of sales.

However, Vladislav Shik, head of foreign trade for Russia's Akron Metal Group, said there were still opportunities for his company: "We do see perspectives for scrap sales to Iran. We could supply up to 250,000 tons per year - the volumes that we now ship to Turkey."