Iran's Debt-Laden Steel Giant Shows Signs of Recovery

EghtesadOnline: The financially embattled Esfahan Steel Company has been drowning in debt for the past few years, but the veteran Iranian steelmaker’s latest production data indicate it is slowly finding a way out.

News ID: ۷۴۳۵۹۱

30 August 2017

In its latest financial report, ESCO set its sales target at 42 trillion rials ($1.08 billion) for the current fiscal year (started March 21). Data released on www.codal.ir show that the steelmaker has achieved 36% of its target in the first five months of the Iranian year (March 21-Aug. 22), with 13% of the target realized in the fifth month of the year, Mordad (July 22-Aug. 22).

Mordad has been ESCO’s best month so far this year, as sales hit 5.25 trillion rials ($136.2 million). The sales of the company’s main products, namely beam and rebar, jumped 130% and 438% month-on-month to 1.94 trillion rials ($50.2 million) and 1.65 trillion rials ($42.81 million) respectively, Bourse24 reported.

ESCO’s Mordad output stood at 100,398 tons for beams, 53,392 tons for rebars, 36,129 tons for ingots and 4,573 for coils, Financial Tribune reported.

The main factor bolstering the company’s sales is the increased local price for ESCO’s primary goods. Beam prices, for instance, increased 10% to 17,237 rials per kg in Mordad compared to the month before, as rebar and ingot grew 14% and 4% month-on-month respectively. Prices in Mordad stood above the five-month average and the company’s budget forecast.

The prices of all three key commodities were on the rise during the five months, with only ingot recording a slight 200-rial dip to 13,767 rials per kg in the third month before jumping to 14,272 rials in Mordad.

Traders at the over-the-counter Iran Fara Bourse reacted favorably to the company’s improving prospects, as ESCO’s shares rose 4.91% to 876 rials per share on Tuesday trade. ESCO’s current earnings per share and P/E ratio stand at -35 and -25.57 respectively.

ESCO’s 90 lost trading days at IFB for the last three months of the year trump its 79 gaining days, but as the improving steel price condition in the local market is expected to continue, ESCO may post profits this year.

But first the company has to take care of its liabilities, as the latest statistics indicate that accumulated losses stood at 21.03 trillion rials ($544.86 million) by the end of this year’s first quarter (ended June 21). Its total debts also stand at 83.25 trillion rials ($2.15 billion).

The Isfahan-based producer is Iran’s oldest steelmaker and the largest producer 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.

> Navigating Troubled Waters

ESCO is taking measures to navigate the troubled waters.

According to its managing director, Ahmad Sadeqi, the steelmaker intends to expand its export markets and gain a foothold in countries with a sustainable demand.

ESCO’s exports stood at 476,000 tons valued at $200 million during the four months of the current fiscal, while last year’s total exports stood at 700,000 tons.

“Zob Ahan [as the company is locally known] was a ship run aground, but now the situation has changed,” Sadeqi was quoted as saying by Chilan.

“We are clearing our debts to organizations, miners and banks. They have already reduced considerably, such as our 7-trillion-rial ($181.34 million) debt to Bank Refah. All liabilities will be cleared gradually in five years.”

The steelmaker signed an agreement with several banks back in March to pay a maximum of 5% of its debt and its interest upfront to be granted a period of respite before spreading the remaining debt over installments for five years. The agreement was made with Bank Refah Kargaran, Mellat, Pasargad and Keshavarzi.

Other cost-cutting measures taken by ESCO include replacing local coal supply with cheaper foreign offerings, boosting the efficiency of furnaces, reducing the furnace’s coking coal usage, reviving an old DRI plant, halting scrap iron purchases and cutting the number of project contractors.

ESCO is also aiming to sell off its non-productive assets to clear some of its liabilities, but has yet to have any success in selling them.