Economy, Business And Markets

Steel Industry in Hot Waters

Steel Industry in Hot WatersSteel Industry in Hot Waters

Iranian steel producers have seen their production fall for the third consecutive month to 1.38 million tons in October, indicating a 4.4% decline compared with the corresponding period of last year.

The October retreat demotes Iran one step to become the world’s 14th largest steel producer in the world.

The overall production figure for the 10-month period of 2015, however, indicates a slight 0.7% growth compared to 2014, as close to 13.6 million tons of steel were produced during this period, compared to the 13.5 million tons last year, according to data from World Steel Association.

According to a representative of Isfahan Steel Company, Nematollah Mohseni, the downward trend in production over the past three months and the insignificant overall growth indicates that the big players of the industry—nearly all of which are in effect state-controlled—are slowly coming to face the reality of diminishing demand in the domestic market.

The industry is also grappling with high production costs.

“Steel mills are operating at less than 70% of their production capacity due to shrinking demand, while new production plants are being established around the country nearly every month,” Donya-e-Eqtesad quoted Alireza Daneshgar, an industrial expert, as saying.

Daneshgar emphasized that the steel industry’s installed production capacity is considerably higher than the current demand in the market, adding that a significant number of producers are operating despite incurring losses.

According to Reza Zaer-Heydari, another industrial expert, the industry must move toward producing high value added steel products and boost exports.

“Iran’s steel products do not enjoy high added value and mostly include simple construction materials or common ingots,” he said.

“Iran’s global standing in steel production does not really matter, as other countries with much lower production figures are standing to make more profit by producing exclusive, high value-added steel products such as steel alloys.

Zaer-Heydari also said the global steel production statistics indicate that focusing on exports is the way to go in the current deteriorating steel market.

Describing exports as Iranian steel producers’ lifeline, the expert stressed that high production costs are currently the main impediment to exports.

“Instead of pushing producers to boost their production figures, the government should support the industry through incentives such as tax exemptions and export rewards so that producers can truly consider entering major overseas markets,” he said.

The industrial expert emphasized that the current decline in domestic demand will not change anytime soon, as steel demand in the country is tied to the government’s construction projects, which are not expected to pick up amid plummeting oil prices and dwindling revenues.

Zaer-Heydari called on the government to reconsider the goal of producing 55 million tons of steel a year as per the 20-Year Vision Plan (2005-25), arguing that trying to increase production under the current market condition will only move the industry further in the wrong direction.