Iran's ESCO Upbeat About Steel Market Conditions

Iranian producers intend to overcome a range of problems to hold their positions in the steel business.

Although steel mills in Iran are facing problems such as lack of investment, fierce competition in the global market and high production costs, Esfahan Steel Company—Iran’s third largest steel producer and one of the country’s leading longs producer—is optimistic about the future and finds its own ways to stay afloat.

Metal Expert, a Ukraine-based provider of news and analysis on steel products and steelmaking raw materials industries, had an opportunity to discuss the corporate strategy and near-term perspectives with Mehdi Sarlak, the export expert of ESCO.

Sarlak revealed the company’s plans and discussed ways of solving the current challenges. Excerpts of the interview follow:

After sanctions removal, Iran expected real economic boom and domestic steel market recovery. What can you say about the current conditions of the country’s steel sector? How does it influence ESCO’s positions?

The main problem of Iran’s steel industry in the period of sanctions was paying for needed materials and equipment, and obtaining the export revenue from overseas. Both these problems based on some policies were solved but, for sure, they were costly.

After sanctions [removal] we still have problems with money transfer but the new horizon made it easier and less costly. The government’s new target is to reach the production rate of 55 million tons of steel by 2025. They are actually in some agreement with foreign investors and they may get about 15 million to 20 million tons of steel from this source.

The private sector sees things differently. They are trying to reach the optimum production rate, which is more than present capacities but they are moving toward this goal very carefully, as the demand and future market are not as they used to be a few years ago and competition is really high.

ESCO is the only steel company using blast furnace technology. Although the quality is higher, production is a bit more costly than electric arc furnace in the country with low prices for gas.

The current market conditions remain challenging. Nevertheless, a lot of Iranian companies announced their optimistic expansion plans. Could you tell us more about ESCO’s development program for the near future?

The way global steel has gone and very careless expansion projects, especially in China, have made the situation very complicated. It is a matter of existing rather than expanding … ESCO’s new rolling stock plants for rail and heavy sections and a new project named after Shahid Kazemi are the main plans scheduled to raise our capacity to 5 million tons of crude steel by the end of 2017.

Recently, ESCO started rail production at its upgraded rolling mill. As the Iranian government announced a number of projects for railroad expansion, can you say sentiments have improved in the segment?

Iran is developing and one of our main needs is a powerful railroad. We have a serious lack in this field and the country has no way but to expand railroads rapidly.

Taking this into account, ESCO entered this segment and we are ready to meet all the needs for rail in the country and also neighboring nations. We will claim our share.

Do you feel pressure from Chinese and Indian rail sellers while supplying materials for different projects in Iran, such as Silk Road or Chabahar Port?

As you know, we are a new player in the rail market and we face some problems. Taking up this challenge is good for us but as long as it is fair and we can learn from it. We started rail production and soon we will be able to cover all of Iran’s domestic needs.

What are your expectations for the rest of the current Iranian year?

We hope to reach a new record in exports, including new destinations and new products. Hopefully, we will arrive at better prices and steel industry will have time to breathe.