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Int’l Endurance Test for  Domestic Steel Industry
Economy, Business And Markets

Int’l Endurance Test for Domestic Steel Industry

The value of Tehran Stock Exchange-listed industrial and mining companies plummeted as much as 80% in the eight months ending November 21, announced a deputy minister of industries, mining and trade on Tuesday.
Mehdi Karbasian added that the mining industry’s market share also shrank to 13% in November compared to last year’s 34%.
Iran’s main steel and iron ore players like Mobarakeh Steel Company, Khuzestan Steel Company, Khorasan Steel Company, Golgohar Industrial and Mining Company and Chadormalu Industrial and Mining Company have all posted losses during the above-mentioned period.
According to TSE data, these companies lost $93.2 million of their value on Monday alone.
Noting that currently close to 3 million tons of steel are in warehouses, Karbasian said many domestic steel and iron ore producing companies are slowly going out of business due to the nose-diving global prices.
He forecast steel prices to drop even further to dip under $240 per ton in 2016, noting that global steel producing giants are heavily focused on reducing production costs and the price of their products, Mehr News Agency reported.
Not a very promising outlook for the domestic steel and iron ore sector.

  Iron Ore Sector
China’s iron ore demand is surging. According to Bloomberg Business, the country’s iron ore imports rose 22% last month and annual purchases may overtake last year’s record 933 million tons.
However, the sprinting iron ore imports do not signify healthy demand in the biggest user.
“They’re masking an industry in trouble,” said Andy Xie, an independent economist who predicted in February that iron ore prices would sink into the $30s this year.
“There is no aggregate increase in demand even if China is importing more because it is just translating into steel exports,” he added.
What this means for the iron ore sector is that as global demand for iron ore is shrinking (mostly from China), competition is tightening for industry players. As for Iran’s iron ore sector, setting sights on overseas markets is not the best option due to high production and transportation costs. Rio Tinto, Vale and BHP are driving the prices so low that it would eventually be uneconomical for smaller players to think beyond borders.
Iron ore prices extended their downtrend for the ninth consecutive week–the longest losing streak in seven years, Bloomberg reported in early December.
Iron ore with 62% content delivered to Qingdao dropped 4.3% this week, falling to $38.30 per dry ton on Friday–a record low in daily prices compiled by Metal Bulletin going back to May 2009. Iron ore has filed its worst stretch of decreases since October 2008 as low-cost supplies expand, according to Metal Bulletin’s weekly data.
Iron ore’s descent into the $30 range threatens the entire industry. Vale, Rio and BHP, however, have defended their strategy. Andrew Harding, Rio’s Chief Executive Officer of Iron Ore, told Bloomberg in November that if the company moved to cut production, volumes would be taken up by less efficient rivals.
Luciano Siani, Vale’s chief financial officer, said last week that the company will continue to lower break-even costs so it can deliver cash flows no matter where prices may be. This is while about 184 million tons of new supply are scheduled to be added over the next two years by Vale and Rio and the export market will be oversupplied until at least 2020, according to Bloomberg Intelligence.
The implications of this condition for Iran’s iron ore are serious. According to Keyvan Jafari Tehrani, an official with the Association of Iron Ore Producers and Exporters, iron ore transportation costs to China for Brazilians, who use 400,000-ton freighters, and Australians, using cargo ships with a capacity of 170,000 tons, are about $5 per ton and still decreasing. This is while this figure stands at $10 per ton for Iranian producers, Donya-e-Eqtesad reported.
It is also highly unlikely for Iran’s iron ore exports to exceed 15 million tons by the end of the current Iranian year (March 19, 2016), he noted.
This is while Iran exported 22 million tons of iron ore in 2014, making it the ninth biggest exporter of this raw material in the world, according to data from the International Steel Statistics Bureau.

  Steel Sector
The trouble faced by the iron ore sector has spilled into the steel industry.
Steel exports by China have exceeded 100 million tons so far this year amid increased iron ore imports and a shuttering of high-cost domestic supply. Shipments of steel products climbed 22% to 101.7 million tons in the first 11 months of 2015, according to Bloomberg Business. The steel sales through November rival output by Japan, the world’s second-biggest producer.
Chinese steelmakers, battling losses, have stepped up exports to compensate for shrinking domestic demand as economic growth slows down. What this translates into is more steel dumping in global markets, including Iran.
“The rising Chinese steel exports and plummeting oil and iron ore prices pose a serious threat to Iran’s steel industry,” said Mohammad Ekba, an advisor with the Ministry of Industries, Mining and Trade.
According to Ekba, the falling oil and iron prices mean reduced steel transportation and production worldwide.
“In this climate, Iran’s steel industry, faced with high production costs, does not stand much of a chance,” he said.
Echoing the remarks, Aziz Qanavati, the CEO of Khuzestan Oxin Steel Company, says the government should stem rampant imports by imposing higher tariffs.
“China cannot enter Iran’s steel market through fair competition and offering quality products, therefore they use strategies such as dumping,” he said.
“The Chinese are planning to dominate the global steel industry through excessive cheap exports and later lifting the prices when the market demand is completely tied to them so that they will make up for the possible losses and even more.”
Domestic steelmakers have long called on the government to keep Chinese products in check, following which the government slapped a 20% import tariff on Chinese steel.
The tariff wall could be built higher, though, as the US Department of Commerce imposed preliminary duties of up to 236% on some steel products from China on Tuesday after US Steel Corp. posted a quarterly loss and cut its outlook for shipments and prices amid what it called “excessive imports”.
The tariff goes into effect immediately and will be set for five years if a final ruling in favor of the duty is made in January.

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