Economy, Business And Markets

Steel Industry on the Brink, Awaits Higher Import Tariffs

Steel Industry on the Brink, Awaits Higher Import TariffsSteel Industry on the Brink, Awaits Higher Import Tariffs

The Iran Steel Producers Association (ISPA) expressed serious concerns over the current situation at the steel market, saying if Indian and Chinese crude steel and other steel products are imported under the current low import tariffs, all hopes of recovery among the domestic steel producers will be dashed.

Indians' proposal for Iran to import steel in exchange for part of the oil money New Delhi owes Tehran is not something new. "In 2013, $1 billion worth of Indian steel was imported to settle the country's overdue debts to Iran," Fooladnews quoted Ahmad Donyanoor, a member of ISPA as saying Monday.  

Based on a payment mechanism proposed by the National Iranian Oil Company (NIOC), the Indian company Essar settled $1 billion of the proceeds tied up in India under western sanctions over Tehran's nuclear energy program.

Supplying steel to Iran is "prohibited", while dealing with NIOC "is very likely to fall foul of European Union and US sanctions legislation," said Jonathan Moss, a legal expert in London to Reuters.

It has been months that domestic steel producers are desperately demanding that the administration impose higher tariffs on imports of steel and steel products. "Tariffs are a powerful tool by which the governments can control the market by taking into consideration both the interests of consumers and manufacturers," added Donyanoor.

The steel market is currently in a predicament and there is neither adequate supply nor sufficient demand. Such a disappointing situation means that, as the world's 15th largest steel producer, Iran needs to take immediate action to save its steelmakers from suffering further losses. Steel market experts believe the administration should think of tariffs that result in fair prices in the market. They also say there must be a separate tariff rate imposed on imported crude steel and imported steel products.

Earlier, another ISPA member had pointed to the gloomy condition of the domestic steel market, saying the US and European countries and even Turkey have imposed tariffs as high as 40% on their steel imports in order to protect domestic steel industries. This is while the steel import tariffs in Iran stands at a paltry 4%.

Currently, all the steel mills in the country are working at only 30% of their capacity, while the melting plants produce only 50% of their nominal output because, according to steel market experts, production under the current situation is not economical. This year, around 15% of the production by the steel manufacturing units has gone into depots.

To end the chaos, the steel producers, through numerous official demand and meetings, have urged the ministry of industry, mine, and trade to raise import tariffs up to 20%. However, the ministry has not yet responded to these calls.

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The officials' current inactivity and delay in decision-making comes as the Iranian Mines and Mining Industries Development and Renovation Organization (IMIDRO), as the country's major state-owned holding company active in the mining sector, says the Rouhani administration has formulated its policies based on close ties with non-government organizations and associations in order to respond to their demands. The efficiency of these policies, though, will be assessed in the near future and the steel sector will see if the ministry and IMIDRO will do anything on the much anticipated changes to the tariff rate.

Mehdi Karbasian, the IMIDRO head and the deputy minister of industry, mine, and trade on Sunday pointed to a few of challenges currently faced by the steel sector.

The domestic and international transportation of iron ore and steel is among the main challenges today, said Karbasian during the 2nd international conference of iron ore producers and exporters association of Iran (IROPEX). The deputy minister added that the national rail transport is not as efficient as road transport and that is why the state-owned railway company has decided to reduce the fees for the transportation of iron ore and steel.

Apart from rail transport, the country is short of large cargo piers and consequently the 300,000-metric-ton freighters cannot load or unload cargo. Moreover, it costs $22 to export every metric ton of iron ore to China while Australia spends around $7 to export the same to China.

According to Karbasian, if national steel projects with a physical progress of 20% or more will be completed ahead of schedule, the country will then face shortfall in iron ore by 2015. Based on the 20-Year Vision Plan, steel output should reach at least 52 million metric tons per annum in 11 years, from the current level which is estimated to be around 17 million metric tons per year. This, however, seems to be a far-fetched objective, as the domestic steel industry is in dire need of up to 9 million metric tons of iron ore pellets, as the main raw material used in steel production process.

A combination of the current shortage in iron ore pellet and the future anticipated shortage in iron ore has made the IMIDRO start exploration operations across a vast area as big as 200,000 square kilometers. So far, the operations have kicked off in an area of 120,000 square kilometers with an initial budget of 1.2 trillion rials ($34.6 million based on market rate).

The ministry officials say if the exploration operations prove the cost-effectiveness of even 40 to 55 percent for a mine, the IMIDRO will then withdraw and let the private sector handle the rest of the job, including extraction and process.

If the private sector is not given enough space, then the semi-state-owned firms will take the helm and that is not desirable for the current government, Karbasian further said, touching upon hundreds of government companies that were taken over by the private sector during the previous government's tenure. Although the major share of such companies is owned by individuals or the private sector, they are still run by figures close to power centers and the important managerial decisions are still influenced by the government.