This year Iran expects to see a significant increase in construction budget, which will lead to the revival of the sector.
Since this segment is the largest consumer of long products, local mills will have a chance of improving their position. As more longs suppliers will want to get their piece of the pie, this can cause higher competition and produce the opposite effect.
The country is already suffering from excess longs capacity, which continues to grow, tightening competition as well as influencing capacity utilization rate and prices.
To learn more about the future of longs market in Iran, Metal Expert, a Ukraine-based provider of news and analysis on steel products and steelmaking raw materials industries, has interviewed Ehsan Dashtianeh, deputy managing director for sales and marketing of the largest longs steel producer in Iran–Esfahan Steel Company (ESCO).
Below is the interview’s full text:
ESCO is one of the leading Iranian longs producers. How do you assess the current activity of the construction sector and longs consumption in Iran?
Construction sector in Iran has been freezing for about three years now. Moreover, oil price drop has disabled state investments in many development projects. Fortunately, after sanctions removal, we have a better financial environment in the country and the market is showing positive signals. Iran’s long steel consumption in 2015 was about 9 million tons.
How balanced is the role of public and private sectors in carrying out projects in Iran? How does ESCO perform in the local market in this regard?
In 2015, about 30% of construction projects belonged to the government. This year we estimate that the government’s share will be more than 50%. Our entire domestic sale is performed through Iran Mercantile Exchange and more than 60% of products have been used in government projects.
How export differs from the domestic market?
For export, usually we sell through negotiation and we have not had any long-term contract so far. Our new export policy is based on having the network of distributors or agents in some countries and our marketing teams are working on details that we will soon announce to media.
With the removal of sanctions, construction market is expected to grow around 8% in 2016. What are your forecasts for longs consumption in the country?
We have two kinds of construction projects. Some have been started and left unfinished, others are greenfield projects. Our studies show long steel consumption in Iran is expected to rise by at least 20% this year.
Despite the expected growth of consumption, there is still the problem of significant overcapacity. How will the powers in the local market change in your opinion and how will it influence ESCO positions?
In fact you are right and not only Iran but also everywhere around the world, countries face overcapacity and that is why the utilization rate is under 70%.
Moreover, the competition will be tougher and just the producers with lower cost can afford to remain competitive in such circumstances. Domestic market, however, is loyal to the ESCO brand and we are trying hard to answer this trust by improving quality and providing products at a reasonable price.
In addition, ESCO’s social responsibility is to support other smaller rolling mills. To fulfill this mission, we are focusing on expansion of our export market share, sales geography and product portfolio, which will give more space for other producers in the domestic market.
What export targets do you have for 2016?
Our steel products export goal is 1 million tons. We have targeted some new regions and our plan is to offer a basket of products to our customers. Our export will include billet, rebar and beams plus rail and new profiles. We also plan to add some byproducts like slag, sludge and tars.
What destinations do you see as promising markets for ESCO?
As I have mentioned before, we are interested in expansion of sales geography. Africa, Europe and some East Asian countries are new targets that we are working on.
What are your forecasts regarding demand and price trend movement in the foreign outlets?
The commodity prices downtrend has come to a halt and we have positive trends in most raw material and steel products. Negative competition and oversupply caused hard times for steelmakers but hopefully we will reach a fair point for both the producers and consumers. So we try not only to keep our traditional market share in export, but also expand it.
