Morteza Aqajani, the head of Hormozgan Steel Company on Tuesday drew attention to the absence of “comparable profit margins” in different stages of steel production process and called for the government to address the issue, Fooladnews reported.
“While profitability in the first stages of the steel production, that is extraction of iron ore and processing it to iron ore concentrate, stands at 70 percent, it reduces to 25 percent at the stage that includes turning the concentrate into steel, and further down to 10 percent at the rolling stage”, said Aqajani, noting that the profitability of the rolling companies is so low that they can hardly cover their manufacturing costs.
Noting that the profitability increases as the steel is turned into other products such as the car chassis after obtaining value added, he said the profitability should be distributed equally in all segments of the steel industry.
Lack of comparable profits in different stages of steel production process, according to the steel company manager, will lead to “inconsistency in the production chain by making the companies active in the less profitable sectors move towards more lucrative areas.”
The steel industry in Iran has seen disputes in the past between raw material suppliers, such as iron ore, iron ore concentrate, and iron ore pellets suppliers and the rolling companies in the past, with each trying to take the lion’s share of the profitable steel industry, Aqajani noted.
“Some steel industries have been so profitable that they now intend to enter other areas of activity, while others are being forced to shut down due to lack of profitability and inability to finance projects, “ Aqajani went on to say.
The expert mentioned two obstacles in finding a solution to the problem. First, balancing the profits in terms of both global and domestic prices is not an easy task and second, the government, having privatized the companies as part of the Article 44 of the Constitution, cannot directly interfere in related issues.
“The most feasible solution to minimize the tension between different players in the steel industry,” Aqajani suggests, is to float shares of different companies. “For instance, a mining company can buy stocks of a steel manufacturing company, while a steel manufacturer could be a shareholder in an iron mine. This way, the interests of all sectors depend on one another, leading to less friction.”
