Esfahan Steel Company is seeking to lighten its debt burden by reaching a setoff agreement with the government, according to the company’s manager, Ahmad Sadeqi.
ESCO’s outstanding debts stood at about 6.6 trillion rials ($175 million) as of November, a significant portion of which pertains to steelmaker’s debt to banks.
According to Bourse Press, the agreement entails setting off state-run Social Security Organization’s 7.6-trillion-rial ($200 million) debt to ESCO.
“The agreement with the government is in final stages and awaits the Cabinet’s approval,” Sadeqi said, adding that if agreed upon, it will be a “significant” step forward in alleviating the company’s financial woes.
The Isfahan-based producer is Iran’s oldest steelmaker and one of the country’s largest producers of structural steel. It was jointly established in 1965 by Iran and the Soviet Union’s Tyazhpromexport Company. Its steel production facilities became operational in 1972.
The company spent most of 2016 mollifying creditors, ranging from coal miners to the government. The situation deteriorated this year, despite ESCO’s efforts to sell various blocks of the company’s shares in the over-the-counter Iranian exchange Iran Fara Bourse.
According to the Persian daily Donya-e-Eqtesad, ESCO is currently accumulating losses worth $26.31 million every day. The gravity of the situation has prompted experts to forecast the veteran steelmakers’ bankruptcy.
Citing low oil prices, China’s dwindling demand, and particularly the recession in Iran’s construction sector, Sadeqi believes the steel industry, both domestic and global, is far from its glory days.
“The budget now only goes to construction projects with more than 70% progress. This has crippled many steelmakers and has especially hit long producers such as ESCO,” he said.
He also blames last year’s rise in coal prices that skyrocketed raw material procurement costs for the company.
China’s coal production cuts, the industry’s optimism over US President Donald Trump undoing the Clean Power Plan and tightening global supply due to Cyclone Debbie damaging rail lines in Australia’s Queensland all contributed to coal prices to reach a six-year high of $330 per tons.
The spike in prices heavily affected ESCO that, unlike most Iranian steelmakers, utilizes blast furnaces instead of electric arc ones.
Another factor contributing to the company’s downturn, according to a member of Tehran Chamber of Commerce, Industries, Mines and Agriculture, Bahador Ahramian, is the government’s interference and its large workforce.
“For over 20 years, ESCO has been managed by government officials who did not even pay a visit to the company,” Ahramian said, adding that ESCO employed about 15,000 people in excess, creating a huge financial burden.
Nonetheless, Sadeqi is confident the company can get back on its feet by boosting production and exports, and manufacturing new and high value-added products.
ESCO plans to boost longs exports to 1 million tons by the end of the current fiscal year (March 20, 2018).
The company produced 2.24 million tons of semi-finished products, including slab, bloom, billet and ingot, as well as 2.05 million tons of finished products such as rebar, beam, pipe and sheet in the last fiscal year (2016-17).
Last year’s exports stood at 640,521 tons of beams, rebars, coils and cast iron, making the company Iran’s fourth largest steel exporter.
Moreover, the company is upgrading its production process to reduce costs.
ESCO inaugurated its iron ore beneficiation plant with a 200 kg/h processing capacity last week. The plant will reduce the iron ore feedstock while boosting production by increasing iron content.
Another plan is to upgrade furnaces with pulverized coal injection. It is a process that involves blowing large volumes of fine coal granules into the furnace.
This provides a supplemental carbon source to speed up the production of metallic iron, reducing the need for coke production. As a result, energy use and emission can be reduced.
According to Sadeqi, the PCI construction process has made about 20% progress and will be completed by December.
Other plans include finalizing an H-beam production line and setting up a pellet production plant.
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