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Steel Industry Growth Faces Systemic Challenges
Economy, Business And Markets

Steel Industry Growth Faces Systemic Challenges

Iran aims to become the world’s sixth largest manufacturer of steel, as per the goals set in the 20-Year National Vision Plan (2005-25).
The plan has stipulated the annual production of 55 million tons of crude steel. Despite objections regarding the plan’s feasibility by industry experts, the government remains adamant in pursuing the goal.
The “Comprehensive Steel Plan” was devised in 2004, based on which domestic steel production was to rise to 28 million tons per year by 2010.
The goal proved to be elusive, however, and the industry fell short of the target by close to 4 million tons by the deadline.
Subsequently, officials in the Ministry of Industries, Mining and Trade as well as those in the Iranian Mines and Mining Industries Development and Renovation Organization revised the original plan and sought to develop new steel projects and attract investments to reach an even more ambitious target.
Based on the revised plan, which is part of the 20-Year National Vision Plan, domestic steel output is to reach 55 million tons per year, 20 million tons of which are supposed to be exported.
Mining and Mineral Industries Commission of Iran Chamber of Commerce, Industries, Mines and Agriculture recently published a report on “systemic challenges” in the way of achieving the envisioned goals for the steel industry.
According to the report, the government’s overprotective policies in support of the steel industry, along with lack of constructive dialogue between the public and the private sectors, have effectively left the infrastructure severely underdeveloped and impeded the sector’s path toward growth.

  Rail Transportation
Rail transportation is one of the fastest and cheapest means of freight transportation. It uses a minimum amount of energy and is highly secure and considerably more environment-friendly compared to land transportation.
Iran’s railroads currently span a total of 11,998 kilometers and are capable of transporting 35 million tons of goods per year. This is while based on the 20-Year Vision Plan, the railroad must expand to over 25,000 kilometers and carry close to 88 million tons of industrial products annually.
Statistics show that the railroad system must sustain an 11% annual transportation capacity growth rate for the next 10 years to achieve the envisioned figure. This is a far cry from the 3.79% average annual growth rate for the last decade.
Expanding the underdeveloped railroad system seems like a tall order without the hefty amount of investments and financing required.

  Water Resources
Water is an essential resource for the production of steel. Considering Iran’s semi-arid climate, there are only a few ideal locations for setting up a steel plant in the country, such as near the sea.
However, many of the country’s main steel mills and even most of the proposed steel plant projects are located in central Iran, away from any major source of water.
This is while Iranian steel mills presently consume over 169 million cubic meters of water per year.
As per the proposed expansion in the Vision Plan, the figure will be nearly doubled, jumping to 370 million per year.
The report indicates that close to $2.4 billion of investment are required to adequately supply all the country’s mills with the required water resources.

  Energy
Iranian officials have repeatedly boasted about the low energy costs in the country as one of its primary industrial advantages. True, but the country’s electricity and gas infrastructure is unable to feed an Iranian steel armada by 2025.
Iranian steel producers used 17,850 million kW-h of electricity for producing 16.3 million tons of steel in 2014. Accordingly, the steel mills would require 46,210 million kW-h by 2025, entailing a 23% year-on-year growth in capacity for the electricity sector with a projected cost of $5.5 billion. However, the sector’s capacity growth averaged at only 6.1% for the last 10 years.
The length of the country’s gas pipelines also have to be doubled to 65,000 kilometers by 2025 to meet the steel producers’ projected demand for 20.3 billion cubic meters of natural gas per year.
Such an endeavor requires further expansion and exploitation of the country’s gas fields.

  Inadequate Port Capacity
The government is aiming to boost steel exports to reach 20 million tons by 2025. In order to achieve that, it needs a robust port infrastructure development to reduce transportation costs and be able to compete in the international arenas.
This is while Iran’s southern ports are only capable of accommodating vessels with a maximum capacity of 60,000 tons, which is a significant disadvantage compared to most of the world’s steel exporters who use ships with capacities of over 400,000 tons.
The low port capacity has in turn caused Iran’s sea transportation costs to soar and adversely affected the steelmakers’ competitive edge in product pricing.
Each ton of Iranian crude steel is currently sold at about $300, which is more than 25% higher than what the Chinese offer in international markets.

  Iron Ore Shortage
Iran’s estimated iron ore reserves stand at about 5 billion tons, close to 2.7 billion of which are proven, with a rather low purity rate of 51%.
In order to realize the steel production figures envisioned for 2025, over 150 million tons of iron ore are required, which entails a 100-million-ton rise in production volume compared to 2014.
Furthermore, boosting production at such a rate and maintaining it would effectively exhaust Iran’s iron ore reserves in about 18 years. The only way to sustain such steel production volume for an extended period of time is to locate 600 million tons of new iron ore reserves every five years.
The report concludes that the goals envisioned for the steel industry in the 20-Year Vision Plan need to be revised, in collaboration with private sector experts, in light of the ground realities concerning Iran’s industrial capabilities.

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