Iran bares its steel teeth

Iran bares its steel teeth
Mobarakeh Steel Company in Iran.
By Will Conroy in Prague March 1, 2017

When steel lobby group Eurofer on February 16 declared that Iranian steel exports had become a “threat” to European producers, many in Iran’s developing steel industry could have regarded it as a compliment. But should EU officials conclude their ongoing investigation into alleged Iranian dumping of hot-rolled coil shipments with a “guilty” verdict, those who have in years of late put in a lot of hard work into re-establishing Iran’s steel industry will not be so pleased.

Iran’s steel industry seems now on the point of a real breakthrough on international markets. Brussels-headquartered Eurofer and its members seem startled by the latest data showing Iranian steel exports into Europe grew nearly eightfold between 2013 and 2016 to just over 1mn tonnes annually, placing Iran third behind India (1.9mn tonnes) and China (5.7mn tonnes).  

The industry has literally been through the wars since the 1979 Islamic Revolution and never quite become the global heavyweight its advocates have long said it could be.

During the 1980-88 Iran-Iraq conflict, the development of the Iranian steel industry lost impetus, and air raid damage greatly delayed the construction of the 2.35mn tonnes/yr Ahvaz Steel Complex. After 1988, annual steel output expansion did eventually take off, with production soaring from less than 1mn tonnes to 6.6mn tonnes in 2000, making Iran the 23rd largest producer.

By the end of 2015, production stood at 16.1m tonnes, putting Iran 14th among steel-producing countries, according to the World Steel Association. Iranian Ministry of Industry, Mining and Trade figures show output rose towards 18m tonnes in 2016, and the government plans to become the world number six by 2025 by boosting output capacity to 55m tonnes/yr. This would put Iran well above Turkey (ranked ninth in the world with 31.5m tonnes in 2015), which presently out-produces all countries in the Middle East.

If that grand ambition is achieved, Tehran would expect the industry eight years from now to be exporting 20-25m tonnes/year, far exceeding what is shipped now. Official figures show approximately 4.4mn tons of crude steel and steel products were exported in the 10 months to January 19, marking 45% y/y growth.

Spooked

Iran’s main steel export destinations in Europe include Italy, Spain and Belgium and the sheer extent in the growth of shipments has Eurofer spooked. It’s not taking any chances. Eurofer spokesman Charles de Lusignan told bne IntelliNews: “Exports from Iran have risen from around 140,000 tonnes in 2013 to over 1.1 million in 2016. This is a significant rise and well outstrips the modest degree of growth in the EU market. The sharp rise in exports is already under the microscope in the EU, not just [in terms of what’s coming] from Iran but from other trade partners. The EU is, for instance, investigating alleged dumping of hot-rolled steel by producers in Iran as well as in Serbia, Brazil, Russia and Ukraine.”

A European Commission source confirmed reports that, following the investigations, the EC has until April to decide whether to impose anti-dumping duties on the countries for six months. It also has 15 months to consider whether to apply “definitive” levies for a period of five years.

Iran, in the meantime, is preparing to fight its case, having hired an attorney to fight dumping allegations, according to a February 23 report in the Financial Tribune. The article quoted Deputy Minister of Industry, Mining and Trade Mehdi Karbasian as saying: “We dismiss all allegations of dumping. There is no evidence to prove this claim.”

For now, individual European steel producers seem anxious not to offend their Iranian counterparts. After Wolfgang Eder, CEO of Austria-based Voestalpine, told Reuters on February 16 that a "European commodity steel business won't be sustainable in the long term unless the external parameters [such as anti-dumping duties or capacity reductions] change" his company’s press office quickly pointed out that their boss was not referring directly to Iranian exports but to the general situation.

But should some of the more optimistic predictions about the potential prowess of Iran steel manufacturing come true such restraint might soon dissolve. For a sample of such outlooks, visit the website of Iran’s Mobarakeh Steel, the largest steel producer in the Middle East, which has around a 60% market share for Iranian steel sheet deliveries. It carries extracts from an April 2016 World Steel Dynamics report issued by renowned global steel industry analyst Peter F. Marcus. Describing the Iranian steel industry as a “rising star” for the next decade, he added: “In comparison, steelmakers in a number of countries, including China, are now falling stars.”

However, Marcus also highlights some difficulties ahead: “The Iranian steel industry is facing an array of challenges in the next decade, including a) a severe shortage of capital since the central government is not providing direct financial help;… b) capital from domestic sources is extremely expensive;… c) the risk that the Iranian currency, the rial, appreciates sharply in the next decade (World Steel Dynamic’s view), which will boost the Iranian steel mills' costs on a US dollar basis;  d) far from adequate low cost iron ore reserves;…  e) the lack of a sufficient countrywide rail transportation system; and f) poor labour productivity.

“Nevertheless,” added Marcus, “granted that economic sanctions are not re-imposed on the economy by foreign countries, the Iranian steel industry's risks and problems seem to be less than those faced by steelmakers in most other countries. The opportunities for a prosperous industry are good given the highly favourable steel demand outlook, the access to low-cost energy in the form of natural gas and the price charged for electricity, the fairly low-cost iron ore mines in the country, the good location to export, attractive capacity expansions via the DRI/EAF [direct-reduced iron/electric arc furnace] route and a government that will be sufficiently supportive of the industry (including the imposition of trade barriers against foreign steel mills when needed).”

Fancying its chances

Also fancying post-sanctions Iran’s world steel market chances was Steel Times International in a February 2016 feature entitled “All systems go for steel in Iran”. The article details some of the great amount of welcome new business that has been opened up in the Islamic Republic for European providers of steel production technology - Italy’s Danieli Group, for instance, had just signed agreements worth around €5.7bn for equipment that can, for example, speed up casting - and explains why Iran’s abundance of cheap gas is so important in steel manufacturing, noting: “Iran’s ability to capitalise on gas-based DRI as part of its raw material mix due to the abundance of natural gas in the region is an important factor to consider.”

Apart from the estimate that the Iranian mining and steel sectors require $50bn in foreign investment to develop at the demanded rates, two other challenges faced by those pursuing the 2025 steel production target include instances where there is a lack of timely access to modern production technologies and potential shortages of iron ore.

The first roadblock may be partially overcome by the government’s exempting of imports of steel production equipment from duties and permitting of imports of second-hand machinery less than 10 years-old. The second could be negotiated by the government slapping duties on the export of unprocessed iron ore (as India has done), making cheap feedstock procurement simpler for domestic steelmakers. But such a move would again raise the hackles of Eurofer. It represents European producers that have to import their ore and says such a move would be tantamount to protectionism.

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