How Iran's Steel Exporters Will Weather Sanctions Storm?

EghtesadOnline: The new round of US sanctions against Iran is being felt across the entire spectrum of Iran's economic sectors. One such sector is the strategic steel industry, which is currently dealing with the threat of losing its export markets—a crucial avenue through which Iran's aggressive expansion plans are being pursued.

News ID: ۷۴۶۶۰۹

02 February 2019

According to Deputy Minister of Industries, Mining and Trade, and Chairman of Board of Iranian Mines & Mining Industries Development & Renovation Khodadad Gharibpour, Iranian steel industry is an export-oriented on in that the country exports more than 40% of its steel productions.

Iran aims to become the world’s sixth largest steel producer as per the 20-Year Vision Plan, which targets annual production capacity expansion to 55 million tons and 20-25 million tons of exports per year by 2025. Iranian steel mills have so far realized just over 30 million tons of the capacity target.

Maintaining Exports

Amid slowdown in the domestic market, producers are now facing the challenge of maintaining their exports, according to Financial Tribune.

Joachim Schroder, chairman of RCG Research & Consulting Group AG, noted that this is the key question for every Iranian steel producer because export is one of the most important ratio in their production.

Schroder spoke to Financial Tribune on the sidelines of the opening of the ninth edition of "Iranian Steel Market Conference", also known as ISMC 2019, on Tuesday.

"On one side, the consumption within Iran is not growing fast enough to feed all the nominal capacities coming up and on the other side, you have not only sanctions from the US, you also have anti-dumping, so for any ton of Mobarakeh steel shipped to Europe, they have to pay anti-dumping of almost €6," he said.

"This is a trend which is getting more and more common. It’s in Latin America, North America and you also see this already in Southeast Asia so to select the right export markets is getting one of the biggest challenges for any managing director or any marketing department because you need the exports and with the ongoing capacity growth, it’s getting even more essential for the utilization of Iranian steel plants."

The Swiss group specializes in mining and steel plants worldwide.

According to World Steel Association, Iran is the world's 10th biggest producer of steel.

The Brussels-based international trade body for the iron and steel industry said in its latest report that Iranian steel mills produced a total of about 25 million tons of crude steel in 2018, up 17.7% compared with 2017.

Iran's latest export data show a total of 5.82 million tons of finished and semi-finished steel products were exported during the nine months of the current fiscal year (March 21-Dec. 21) to register a 2.36% year-on-year growth.

According to the Iranian Steel Producers Association's report, semi-finished steel made up 3.67 million tons or more than 63.11% of the total export volume, down 20% YOY.

Billet and bloom had the lion’s share of semis exports with an aggregate of 2.29 million tons to mark an 11% YOY decline. Slab followed with 1.37 million tons, down 32% YOY.

Exports of finished steel products surged 100% YOY to reach 2.14 million tons.

Rebar was the main exported finished product with 1.13 million tons, registering a 185% jump YOY.

Following rebar were hot-rolled coil with 528,000 tons, up 20% YOY; beams with 196,000 tons, up 52% YOY; “other steel products” with 140,000 tons, up 150% YOY; coated coil with 125,000 tons, up 178% YOY; and cold-rolled coil with 27,000 tons, up 238% YOY.

Anti-Dumping Duties on Iranian HRC

The European Union announced anti-dumping duties on the import of hot-rolled coil from Iran and three other countries in October 2017.

The European Commission had initially proposed setting a minimum import price on HRC from Iran, Russia, Ukraine and Brazil. Suppliers from these countries were required to pay anti-dumping duties in the range of 5.30-33% if they sell their products for less than €468.49 ($561.06) per ton at EU border ports.

The EC, however, revised its proposal after failing to secure backing from EU member states.

Among the companies subject to tariffs were Mobarakeh Steel Company with a duty of €57.5 per ton and Ukraine’s Metinvest Group at €60.5 per ton, alongside the Brazil arms of ArcelorMittal and Aperam, both of which also produce in Europe, Cmpaniha Suerugica Nacional, Usinas Siderugicas de Minas Gerais and Gerdau-at rates of between €53.4 and €63 per ton.

Two Solutions

Schroder said there are two solutions for this problem.

"There are still markets in Africa and Southeast Asia which have insufficient domestic production so there are some selective markets still open. That’s one way and the other way I think is to look for cooperation because the big asset of Iranian steel industries that, together with CRS (cold-roll sheet) producers, they have the cheapest production cost and that is something where you can probably develop your business model; say you ship semi products like slabs or billets and then you cooperate very closely with steelmakers because most of the countries don’t put any anti-dumping on semi products so that is a, not today or tomorrow, but that is a long-term strategy I would suggest for the big players in the market," he said.

Referring to the absence of proper banking channels to support Iran's steel exports as the "biggest problem", the AG chairman said the previous round of sanctions showed Iran is able to find a way to circumvent sanctions.

"You had sanctions before and you were able to double your production also under these [circumstances]," he said.

New Channel for Europe's Non-Dollar Trade

France, Germany and Britain have opened a new channel for non-dollar trade with Iran to avert US sanctions, although diplomats say it is unlikely to allow for the big transactions that Tehran says it needs to keep a nuclear deal afloat, Reuters reported on Thursday.

Washington’s major European allies opposed last year’s decision by US President Donald Trump to abandon the 2015 deal, under which international sanctions on Iran were lifted in return for Tehran accepting curbs on its nuclear program.

The Instrument in Support of Trade Exchanges, or INSTEX, is registered in France and will be headed by German banker Per Fischer, a former Commerzbank director. The three European powers are shareholders and hope other states will join later, although a senior German official said this was not imminent.

The European powers must now establish a budget for INSTEX and define its rules. Iran must also set up a mirror company.

“It seems that Iran should set up the same system inside Iran to organize rial transactions for Iranian companies,” Iran's Deputy Foreign Minister Abbas Araqchi was quoted as saying.

Optimism Remains

Noting that Russia, CIS countries and China are likely to defy the US and therefore are good candidates to cooperate with Iran in the steel sector, Schroder concluded his interview on an upbeat note.

"I think that Iranian steel industry always was in favor of the good cost position. I think what Iranian steel producers have to consider now is to get more into attractive products, value-added products, and this requires new processes, new understanding of technology and I think that is a big driver for the future of Iranian steel industry and that is just starting to consider this as a success factor for the future of the Iranian steel industry," he said.

The two-day ISMC 2019 was concluded on Wednesday. It gathered hundreds of people, including steel and mining industry veterans and government officials.

The annual event, a brainchild of Donya-e-Eqtesad Media Group, the parent company of Financial Tribune, is held to discuss challenges and opportunities facing Iran's steel industry. This year, perhaps, the challenging part has grabbed more attention amid the new round of US sanctions imposed against the Islamic Republic with the aim of restricting Iran's trade with the world.

"I think that the effective organizational processes are extremely relevant for being successful on export markets. But what I’ve seen of the enthusiasm and what I have seen also the skills of Iranian steelmakers, I’m very positive that you can manage these challenges and you have shown already in the past that you have been very successful in managing this and I wish everybody here all the best in executing your steel strategy," Schroder said in an address to the conference.