Steel Exports Can Help Ease Domestic Glut

The domestic steel market is currently grappling with a glut. Some cash-strapped producers have cut down on production to weather the storm, while many large-cap players carry on at full capacity while eying overseas markets. 

Experts believe the main way forward for the industry’s survival is to boost exports.

“A large portion of our steelmaking capacity is currently dormant due to market saturation, while at the same time new plants are coming on stream everyday [as part of the government’s expansion plans]. Consequently, steelmakers have no choice but to boost exports and competitiveness,” steel industry analyst, Reza Zaer-Heydari, was quoted as saying by SMT daily.

As part of goals set in the 20-Year Vision Plan (2005-25), Iran seeks to become the world’s sixth largest steelmaker by boosting crude steel production capacity to 55 million tons per year by 2025. Iranian mills have so far realized 31 million tons of the envisioned figure.

With all that capacity coming, industry players have no choice but to curb their reliance on local sales.

“The steel markets of Tehran and Isfahan can absorb only so much and soon enough about half of Iran’s output must go to foreign markets [to become economically feasible],” said the industry expert.

According to Deputy Minister of Industries, Mining and Trade Mehdi Karbasian, Iran aims to export 20 to 25 million tons of steel annually by 2025.

Based on the latest data, 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.

However, venturing overseas has its own perils. These range from domestic steelmakers’ lack of balance in manufacture and dull competitive edge vis-à-vis tough regional rivals and the new wave of protectionism sweeping across global markets.

There is currently an imbalance between supply and demand when it comes to long and flat steel output. 

According to Zaer-Heydari, the rampant long steel capacity-making during the construction sector’s boom years has left the mills with an oversupply of the industrial material, little of which has any demand outside of Iran. 

On the other hand, steelmakers’ flat steel output is unable to adequately supply the local market while it enjoys robust foreign demand.

The market analyst criticized industry players for continuing long steel capacity expansion in the face of the glut and called on the government to change the policy by supporting export-oriented sectors of the industry.

Zaer-Heydari noted that the regional steel powerhouse Turkey also went down the same path as Iran by attracting investments and setting expansion goals, as it is now one of the most successful rebar exporters worldwide.

Turkey’s winning card is its production flexibility and international marketing prowess, despite the country’s high energy and production costs. 

When a certain product loses its luster, the industry shifts toward the manufacture of more profitable commodities with higher demand. At the same time, the neighboring country’s effective marketing in the United States and Europe ensures sustained demand for Turkish goods.

This is while Iranian steel, while enjoying low gas prices, abundance of iron ore reserves and a strategic location in the region, has yet to secure a firm foothold in international markets.

Zaer-Heydari believes that other than balancing industry issues on the domestic front, “steelmakers should batten down the hatches and explore new foreign markets. They should bolster their marketing departments with experienced, multilingual staff and move beyond their comfort zone”.

However, Iran’s job will not be easy in a business environment where most countries intend to protect their markets against foreign interferences. The very latest instance of the rise of protectionism in steel markets was seen in Europe.

The European steelmakers’ association Eurofer said on Thursday Iran has increased exports of hot rolled flat steel rapidly to the European Union market and accused the country of “trade distorting measures”.

“The threat from Iran is new and it’s going to be one of the top three issues: China, India, Iran,” Karl Tachelet, external relations and trade director at Eurofer, told Reuters.

The EU is currently investigating alleged dumping of hot-rolled steel by producers in Serbia, Brazil, Russia and Ukraine.

According to Eurofer, Iranian exports to Europe had leapt to just over 1 million tons annually, putting the country just behind India at 1.9 million tons, while China shipped 5.7 million tons in 2016.