Iranian steel manufacturers believe consolidation is the only way out of the ongoing recession, as they aim to boost steel exports.
Outdated technologies, high operational cost and lack of transportation and infrastructure networks are some of the major problems, Metal Expert, a Ukraine-based provider of news and analysis on steel products and raw materials industries, wrote in a recent report dubbed “Iran in Focus”.
“The industry’s largest obstacle to growth is the myriad of steel plants operating at low, uneconomical production capacities, which is a waste of time, energy and resources,” Bahram Sobhani, CEO of Mobarakeh Steel Company, said.
Iran has a large number of steel factories with production capacities ranging from 30,000 to 6 million tons. Large mills are the drivers of the local steel industry, as they produced 88% of the total output in the last Iranian year (March 2015-16).
To optimize production, local mills have proposed creating a steel consortium. Six steel companies, namely Hormozgan Steel Company, Maad Koush Iron Ore Pelletizing Company, Maad Chemie Iron Ore Concentration Plant, Saba Steel Company, South Kaveh Steel Company and Pars Mining Industries Development Company, plan to form a consortium to produce 10 million tons of steel per year.
“The merger implies all the companies sharing the infrastructure: one railroad, one electricity source and one water treatment plant, which lead to a much lower cost,” he said.
Their merger would mark the industry’s first step toward the integration of steel operations for boosting productivity and exports.
“The implementation of the proposed plan will indicate the Iranian steel industry’s maturity,” he added.
Other beneficiaries of the steel industry’s integration are Middle Eastern and European buyers, which will have an opportunity to diversify supply and get access to commodities of appropriate quality and price.
“Iran is offering competitive prices for steel now and its range of products is diverse,” a buyer told Metal Expert.
The idea looks sound and viable, considering the successful example of South Korea, producing close to 70 million tons of steel, 90% of which are manufactured only by POSCO, Hyundai and Dongkuk Steel–all three formed either through merger or acquisition of other steel companies.
Nevertheless, experts believe this path poses a challenge to Iran.
“The proposed plan still lacks details concerning ownership, organizational structure and the capital expenditure of the final company,” said Mohammad Reza Daneshgar, an industry expert.
