Steel Exporters Welcome Rial Depreciation

EghtesadOnline: It’s a fairly straightforward scenario. Weakening a domestic currency stimulates the country’s exports and makes imports more expensive—a desirable route to shape an export-oriented economy taken by many export powerhouses such as China.

News ID: ۷۴۳۹۱۱

25 September 2017

For Iranian steelmakers, who came rushing out of crippling international sanctions only last year and returned to global markets, nothing could be better than a weak domestic currency. And the forex market seems to be giving it to them.

Euro, the Iranian steel exporters’ currency of choice, has gained 15% against rial so far this year since March 25 to reach above 47,000 rials, data by Eranico showed.

The currency started soaring as of the end of the first quarter (June 21) and its path forward seems to be uninterrupted for the time, Financial Tribune reported.

The US dollar, on the other hand, has maintained a balanced trend to date with a slight uptick. The greenback gained 2.5% against rial to stand at 39,210 by Sept. 24.

Most of Iran’s transactions are done in euros, as US secondary sanctions on banking relations with Iran are still in place and bar banks from working with Iran in dollars.

Euro’s rising trajectory can promise a lucrative period for local steelmakers, at least in the medium-term.

Iranian steel exports have been constantly on the rise in the five months since the beginning of the current fiscal year (March 21-August 22), reaching 4.1 million tons of semi-finished and finished steel worth $1.46 billion, up 14.3% in volume and down 14% in value year-on-year, the Islamic Republic of Iran Customs Administration announced.

Steel shipments accounted for 40% of Iran’s total mineral exports during the five-month period.

The drop in value can first be explained by the marked decline in shipments of high value added materials such as hot-rolled coils this year. HRC exports dropped 86% during the five months to 87,000 tons. This is due to the fact that Mobarakeh Steel Company, Iran’s largest producer of flat steel, had to cut back on its overseas sales to address the intensifying local pressure from both officials and downstream users to meet domestic demand.

It also faced mounting allegations of HRC dumping by the European Union last year, prompting MSC to gradually retreat from the market.

On the other hand, last fiscal year (March 2016-17) was the first time Iranian steelmakers were experiencing a sanction-free trade environment after years of limitations. This led the recession-hit producers to empty all their inventories into global markets, propping up both trade volume and value for the previous year.

The government’s plans to expand the steel industry also necessitate a continuous rise in exports.

Iran aims to become the world’s sixth largest steelmaker by 2025 by amassing a 55-million-ton crude steelmaking capacity, as part of goals set in the 20-year Vision Plan. The country has so far realized more than 60% of the target with new capacities steadily coming on stream.

In the absence of a lively construction sector, however, the producers will have no choice but to ship most of that steel (with a hypothetical 100% capacity utilization ratio) abroad.

Experts estimated the need for Iran to export 20-25 million tons per year within the framework of the Vision Plan.