Economy, Business And Markets

Iron Ore Pellets: Steel Sector’s Achilles’ Heels

Iron Ore Pellets: Steel Sector’s Achilles’ Heels
Iron Ore Pellets: Steel Sector’s Achilles’ Heels

Iran became self-sufficient in steel production in 2009 and a year earlier, it produced 7.5 million tons of direct reduced iron (DRI). The country accounts for 13% of global DRI production and 41% of total Middle East DRI production.

The steel industry is of great economic, political, and strategic importance and the steel production rate is considered as a key indicator of progress in all developed and developing countries.

Despite Iran being the world’s 15th largest steel producer, figures announced by officials sound a bit far from reality. Based on the 20-Year Vision Plan, the country, by 2025, should produce 55 million tons of steel per annum, a figure which is most probably not going to materialize, as the current production barely hits 20 million tons a year.  

Currently, the biggest challenge the steel industry is grappling with is providing iron ore pellets which itself is dependent on iron concentrate. The problem is so serious that even the minister for industry, mines, and trade has admitted the shortage. Mohammad-Reza Nematzadeh recently stressed that the country is in dire need of between 6 and 8 million tons of iron ore pellets, which is considered as the main feedstock for steel plants, every year.

The main challenge faced by the steel industry is a lack of comprehensive planning, particularly over the past decade, said Ebrahim Baqeri, administrative manager at Middle East Mines Industries Development Holding Company (MIDHCO).

Baqeri told Financial Tribune that the previous government merely tried to break futile records in setting up steel factories, many of which were built in wrong locations with no access to sufficient water.

MIDHCO, with 12 subsidiary companies, has concentrated its activities on Kerman province, known as the mining HUB. The company’s motto is ‘from mine to product’, which Ebrahimi said means they take care of all the operations and processes of steel manufacturing from extraction to process and finally steel production, a pattern that the government, ministry of industry, and Iranian Mines, Mining Industries Development, and Renovation Organization (IMIDRO) are expected to set, emphasized Baqeri, whose 7-year-old private sector company aims to produce 4.2 million tons of steel, 8 million tons of iron concentrate, 7.5 million tons of iron ore pellets, and 0.5 million ton of coal concentrate during a five-year development plan.

Industry experts believe the only way to gradually decrease the import of iron ore pellets and ultimately end it is that steel manufacturers move towards running downstream industries such as iron ore pellets and iron concentrate manufacturing units.

Another solution domestic steel manufacturers have been mulling over is to establish joint companies responsible for producing iron ore pellets and iron concentrate, as the crucial input for the industry, for multiple steel plants.

More than 650,000 tons of iron ore pellets were imported during the first four months of the current Iranian calendar year—which started on March 21— while the country exports huge amounts of raw iron ore. If the government can hit the future targets in producing steel, the country will not only export raw iron ore, but it will need to import the mineral.

Based on official statistics, Iran gains between 10 and 20 dollars by exporting every ton of raw iron ore. This is while more than $30 per ton is spent on carrying the iron ore to the Southern port of Bandar Abbas to be exported, which makes it quite uneconomical.

The steel industry has asked the government to support plans to produce iron concentrate and establish iron ore pellets manufacturing units in order to stop exporting raw iron ore. Such objectives will help the country reach the planned targets to annually produce 55 million tons of steel by 2025.