Steel Production Chain Imbalance Impeding Industry Expansion

EghtesadOnline: The government has turned to various experts for assessing the steel industry’s status quo and analyzing its expansion program’s progress and shortcomings in the last few years.

News ID: ۷۴۳۸۴۵

19 September 2017

The latest is Iron & Steel Society of Iran, an assembly made up of industry experts, managers and academia.

ISS recently published a comprehensive report titled “Analyzing Current Condition of Iran’s Steel Industry and Future Outlook” and presented it to the government. This is the report’s fourth update released in July, which was publicized recently.

The report presents data on the industry while addressing each impediment to expansion in detail, with the top one being the imbalance in raw material production and supply, according to Financial Tribune.

Raw Material Production, Deficit in Detail

Each sector of the steel production chain relies on both downstream and upstream producers to sustain raw material supply to the industry.

The ISS report indicates a lack of balance between sectors, using data up to March 20, 2017, and points out new capacities that have either come on stream during March-June or will be installed by 2018.

Iran will require 168 million tons of iron ore, 86 million tons of concentrate, 87 million tons of pellet and 57 million tons of DRI to realize the 2025 steel target. Shortages of all the materials still loom large.

Iran’s iron ore concentrate output capacity stood at 45.5 million tons per year by March 20, 2017. Over 2 million tons of this figure were added in the last fiscal year (March 2016-17). This is while concentrate plants used only 70% of the capacity to produce 31.6 million tons of the material last year.

ISS points to lackluster iron ore supply to concentrate plants and infrastructural shortcomings such as lack of access to water resources as the main factors limiting production, which, being one the earliest steps in the production chain, will accordingly affect steel output.

Establishment of Kimia Madan Sepahan in the first quarter of the current year (March 21-June 22) added 300,000 tons to the concentrate capacity. Moreover, Jalalabad Iron Ore’s beneficiation plant and Sabanour’s concentrate plant will boost capacity by 600,000 and 675,000 tons upon being operationalized.

The 2.5-million-ton Sangan concentrate plant located in Khorasan Razavi Province is also in the making. These projects are slated to bring the capacity up to 47 million tons by March 2018.

Pellet production capacity stood at 32 million tons last year, with production reaching 25.6 million tons. This year, 4.5 million tons will be added and bring it to a total of 36.5.

The interdependency between the cycles rears its head here, as pellet plants need 40.6 million tons of concentrate to make full use of their nominal capacity. The installed concentrate capacity does, indeed, exceed pellet-makers’ demand, but concentrate plants’ underperformance has brought about a deficit in supply.

As for direct-reduced iron, capacity currently stands at 25.25 million tons with a production of 17.3 million tons. The capacities in the pipeline are set to boost the total capacity to 29.3 by March 2018.

Yet again, the lackluster pellet output causes a deficit of 8 million tons in DRI production compared to its nominal capacity.

Moving up the chain, we reach crude steel production, the nominal capacity of which stood at 30.8 million tons by the end of last year. Only 60% of this capacity are utilized due to the imbalance in the production chain, but the upcoming projects are bound to bring the total capacity to over 37 million tons this year.

Output capacity for the last link of the chain, steel product manufacture, stands at 37 million tons with long steel capacity accounting for more than 70%. There is again a deficit in crude steel supply here, yet it is mitigated by the subpar capacity utilization ratio in this sector.

As the data show, there is at least an imbalance of 2-3 million tons between the nominal capacities of different links of steel production chain and an even greater disparity in output.

The steel industry might be sprinting to the 55-million-ton target, but it will need to bring different sectors up to speed before it can materialize its goal.

Future Outlook

The Iranian mining sector, especially the steel industry, has been hailed time and again by government officials and experts alike as the one true candidate to help Iran’s economy wean off its main source of income, i.e. oil.

Realizing this potential, the government has prioritized steel industry development by devising ambitious plans, though limitations are impeding progress.

Iran is currently the world’s 14th largest steelmaker, having produced 11.52 million tons of crude steel from January to July 2017. The country’s output for 2016 stood at 17.89 million tons, World Steel Association reported.

By 2025, Iran is targeting to become the world’s sixth largest steelmaker by notching up a 55-million-ton crude steel production capacity, as part of the goals set in the 20-Year Vision Plan. And things have progressed well so far, with the realization of more than 60% of the target capacity.