Economy, Business And Markets

Global Giants Upbeat on Iranian Steel Prospects

Business & Markets Desk
Low gas prices and abundance of DRI give Iran a competitive edge compared to other producers who use coal, the price of which has more than doubled in the last two years
The Seventh Iranian Steel Market Conference opened in Tehran on Feb. 14. (Photo: Forough Alaei)
The Seventh Iranian Steel Market Conference opened in Tehran on Feb. 14. (Photo: Forough Alaei)
Over the past four years, Iran’s pellet production capacity has grown 66% to 35 million tons, DRI capacity has risen 42% to 27 million tons and crude steel capacity is up 29% to 31 million tons

Throughout history, the path to industrial development has been paved by steel industry. It has built up invaluable infrastructures, spearheaded technological development and spurred economic growth.

For Iran, the steel industry is set to play an even more important role. After years of crippling sanctions, the country wants to get its industries back on track and streamline economic growth. This is while low oil prices have failed to boost revenues and drive the economy. 

The most potential alternative is the development of the mining sector, especially the steel industry.

The Seventh Iranian Steel Market Conference, hosted by Donya-e-Eqtesad media group, opened in Tehran on Tuesday with exactly this aim in mind. It brought together a host of steel industry officials, local and foreign players and market analysts to follow up on last year’s post-sanctions excitement and clear the industry’s path to growth.

The industry is currently grappling with various challenges on both foreign and local fronts.

The Chinese steel armada is still strong and threatening global markets. While demand is growing slowly, the rise of protectionist trade policies is hurting the prospects of exporters.

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Domestic Targets, Challenges

In Iran, the government is doing its best to reach the 55-million-ton steel production capacity goal envisioned in its 20-Year Vision Plan (2005-25). 

The goal’s achievability, however, is challenged by the downstream sectors' unbalanced supply of raw materials and the underdeveloped transportation infrastructure needed for boosting exports. Both require billions of investments, the procurement of which has proven to be the main bottleneck in post-sanctions Iran.

Iranian speakers at the conference included the head of Iranian Mines and Mining Industries Development and Renovation Organization, Mehdi Karbasian; Minister of Industries, Mining and Trade Mohammad Reza Nematzadeh; former parliament speaker, Ali Akbar Nateq-Nouri; the head of Islamic Republic of Iran Railways Company, Saeed Mohammadzadeh; and the head of Iran Mercantile Exchange, Hamed Soltani-Nejad

Managing director of Spain’s Sarralle group Javier Esquiroz; CEO of Italy’s Danieli Group Gianpietro Benedetti; the head of Germany’s SMS Group, Burkhard Dahmen; CEO of Austria’s INTECO, Harald Holzgruber; and Turkish Steel Exporters Association’s market analyst, Cihan Akedniz, were among the notable foreign participants.

“The Iranian steel industry is now in its fifth decade. Ever since we started, the lack of balance [between raw material supply and steel production] was a concern for industrialists. The issue has now partly been resolved as a result of boosting mineral exploration and establishing a string of upstream plants,” said Karbasian, who is also deputy minister of industries, mining and trade.

According to Nematzadeh, over the past four years, the industry’s pellet production capacity has grown 66% to 35 million tons, DRI capacity has risen 42% to 27 million tons and crude steel capacity is up 29% to 31 million tons.

However, completely resolving the issue of raw material scarcity and realizing the 2025 steel expansion goals require close to $30 billion of investment, the attraction of which has been one the main goals pursued by industry players in post-sanctions Iran.

Karbasian appeared confident that despite the challenges, the outlook is bright for growth in the steel industry.

“Annual demand for steel in the Middle East and North Africa region is 71 million tons, while member countries only produce 36 million tons. Considering the potential of Iranian mines, the country’s gas reserves and its steelmaking capacity, we believe investing in Iran is going to be lucrative for [both local and foreign] investors,” he said.

Karbasian noted that low gas prices and abundance of DRI means Iran has a competitive edge compared to other producers who use coal, the price of which has more than doubled in the last two years.

Steel prices are also set to rise on the global scale. China has been forced to cut down its production capacity due to environmental issues. This is expected to reduce global supply and positively impact the markets and consequently Iranian exports.

Iranian steelmakers exported more than 4.4 million tons of crude steel and steel products during the 10 months to January 19, registering a 45% growth compared with last year’s corresponding period.

Underdeveloped Transportation Sector

“If we are to produce 55 million tons of steel under the current conditions of our transportation sector, it will be as if we first build a factory in the middle of Tehran and then wonder how to ship the products out,” said Saeed Mohammadzadeh, managing director of Islamic Republic of Iran Railways Company.

During the 10 months of the current Iranian year (March 20-January 19), 66% of the country’s iron ore and coal production were transported via land, while railroad transportation accounted for only 28% of the total amount.

Based on IRIR’s forecasts, 224 million tons of mineral products will be transported every year in Iran by the end of 2025. 

Mohammadzadeh noted that with the current rail infrastructure in place, only one-third of this figure will be transported using rail and this will inflict high costs on producers.

In order to fix this deficiency, the government and the private sector must collaborate in developing the transportation sector by boosting investments, as IRIR’s revenues from duties on transportation are not sufficient for expansion plans.

The New Normal

According to Gianpietro Benedetti, the CEO of Danieli Group, the global steel market has entered a “new normal” period and is set to remain balanced for at least the next two years.

Steel markets around the world have a history of fluctuation with the emergence of new, major developments such as the Second World War, the collapse of Berlin Wall and the fall of the Soviet Union. The last major occurrence in recent times was the rise of China, which boosted global steel consumption by over a billion tons per year.

“China is now in a flat situation with no [noticeable] up or down in consumption. Global quantity will not increase, prices will slightly improve and protectionist policies in different areas such as the US and the EU will become dominant. In our opinion, this new normal will stay on for quite some time,” said the Italian official.

What can be done during the new normal period? According to Benedetti, the obvious answer is to improve product quality, increase value added and lower production costs, which is “very simple to say and very difficult to do”.

And Iranian steel, with the relative advantages it boasts, can thrive in this environment.

“[Iranian steel] is blessed by God. You have iron ore, energy and competitive [production costs]. Theoretically and practically, you are the one that can produce billets and slabs with lower costs. You could be 15% less expensive than the Chinese and 25% less than producers in the United States,” he said.

Benedetti elaborated on Danieli’s operations in Iran and how it is striving to improve the productivity of Iranian plants. 

The Italian firm is currently cooperating with Khorasan and Mobarakeh steel companies to reduce their production times and costs. 

With Khorasan, improved types of wired rods, blooms and ingots are planned for production. 

With MSC, Danieli is set to establish a new production line to manufacture steel sheets with special aesthetical effects such as wood, brick and any other texture that clients require.

Javier Esquiroz, the head of Sarralle group, also hailed the potential of Iranian economy for foreign investors.

“You have a diversified economy, the largest gas reserves of the world, significant mineral reserves, as many engineers as the United States, an 80-million population, and an entrepreneurship tradition with an impressive startup community. These strengths, if managed, can generate high value-added for the steel industry,” said Esquiroz.

Sarralle’s projects in the Iranian steel industry include setting up a smelting shop in South Kaveh Steel Company in Bandar Abbas, establishing electric arc furnaces and slab casters in Arvand Jahanara Steel Company in Khuzestan Province’s Abadan City, establishing a rolling mill for Arvand Kaveh Steel Company also in Abadan City, and setting up a smelting shop in Iran Alloy Steel Company in Yazd Province.

Esquiroz added that Spanish banks have announced their complete readiness to finance projects in Iran.

With such optimistic international partners, Iran is on the cusp of a breakthrough in steel growth and prosperity.

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