Tehran Conference Surveys Steel Industry Challenges, Prospects

 

Donya-e-Eqtesad Media Group, the parent company of Financial Tribune, hosted the first day of the 11th Iranian Steel and Iron Ore Market Conference and Expo at Tehran’s Olympic Hotel on Monday.

The event, which will run through Wednesday, is sponsored by the Ministry of Industries, Mining and Trade, the Iranian Mines and Mining Industries Development and Renovation Organization (IMIDRO) and the University of Tehran, along with major mining and steel companies.

Noting that steel industry can serve as the engine of the Iranian economy, Donya-e-Eqtesad Media Group CEO Alireza Bakhtiari addressed the inaugural session of the conference and said steel is expected to have a significant share in metal markets in the years to come.

“After oil, steel is a major contributor to world economy,” he was quoted as saying by Irasin.ir, a news agency owned by Mobarakeh Steel Company, the biggest steelmaker in Iran and the wider Middle East and North Africa region.

Bakhtiari said the Russia-Ukraine conflict has led to a decline in global steel output as the two countries are major producers. 

“Yet, the exit of the duo from the market means rising opportunity for other countries. Global demand for steel is expected to grow in 2022 and 2023, but rising prices of raw materials, mainly iron ore, and their shortage, are major problems facing steel production,” he added.

 

Bakhtiari underscored the importance of legislating steel industry and the need for strategic synergy among decision-makers, while strongly criticizing the imposition of customs duties on steel exports.

“Following the ongoing Russia-Ukraine war, many countries are incentivizing production,” he said.

The Industries Ministry’s recent directive to the Islamic Republic of Iran Customs Administration had mandated export duties on mineral products to come into force in the new fiscal year (started March 21).

Customs duties were to be imposed on exports of all products along the steel production chain from iron ore to steel ingots and downstream products, as well as base metals, including copper, aluminum and zinc, from concentrates to the metal and downstream products, petrochemicals, chemicals, glass, clinker, cement and all kinds of ferroalloys. 

The rate of duties was said to be progressive, meaning they increase as the export volume rises. The decision was vehemently protested by businesspeople active in the field. Consequently, the ministry revised down the duties.

“The export duties recently imposed on mineral products is a short-term measure taken by the government and is aimed at regulating the domestic market,” said Mohammad Sadeq Mofatteh, deputy minister of industries, mining and trade.

“By levying customs duties on exports, supply to the domestic market will increase. We have a chart in the Industries Ministry, based on which customs duties will be set on exports when the domestic and global price difference exceeds a certain threshold,” he was quoted as saying by IRNA on Saturday.

The export duties, he added, are subject to change in accordance with global price fluctuations, noting that last week, the duties were reduced because prices in the international market declined.

“We have reduced the customs duties set around a month ago because of the recent decline in the global prices of different mineral commodities,” Seifollah Amiri, director general of the Office of Mineral Industries, said.

The official added that duties on certain products were lifted altogether, but if global prices rise in the future, they will be levied again. 

“The Industries Ministry will survey global prices over the next two weeks and based on market situation, will make changes in duty rates again. Consignments for which order placements were made before this new regulation or those that have warehouse receipts belonging to earlier dates need not pay any duties,” he said.

Amiri noted that the Industries Ministry will set customs duties on mineral products that see price increases of 5% or more in the international markets, but those experiencing price rises of 0-5% will be exempted.

“In setting customs duties, we also take into account the domestic market situation. For some products, the mining industry had no problems in supplying the local market, so we eliminated the related export duties ,” he said.

  

Mohammad Atabak, the economic deputy of Mostazafan Foundation, a major conglomerate in Iran, was the next keynote speaker at the event.

“From Iran’s $48 billion exports in the last fiscal year [March 2021-22], steel had a 13% share,” he said.

Describing electricity supply as a major challenge facing the steel industry in Iran, the official said growth in the electricity sector has declined from 9% in the past to 2% at present; “in other words, growth has fallen behind demand”.

Atabak noted that power cuts in the last Iranian year (ended March 20) increased the cost of steel production.

“This is while transportation costs have increased by 80%. The more than 50% increase in workers’ wages as mandated by the Labor Ministry has also imposed a considerable cost on steel producers,” he added.

Cooperatives, Labor and Social Welfare Minister Hojjatollah Abdolmaleki had announced in March that minimum wages will rise by 57.4% in the new Iranian year.

The move sparked debate among experts and economists about its implications, considering the high inflation in Iran.

“Inflation has always eaten into rising wages; the rational and scientific way to support workers is by controlling inflation,” says Mohammad Reza Najafimanesh, a member of Tehran Chamber of Commerce, Industries, Mines and Agriculture. 

“Given the 57% increase in wages approved by the Supreme Labor Council, a 60% rise in inflation is on the cards for the next year. Inflation will take away all the wage gains,” he said.  

“The government needs to adopt an appropriate approach and decrease inflation. In countries where there is no chronic inflation, such pay rises are nowhere to be seen. In addition, inflation has proved to offset all measures taken by governments regarding wage increases,” Najafimanesh was quoted as saying by the TCCIM news outlet.

“Such a growth in wages would hurt small- and medium-sized enterprises. Large industries with a small share of labor costs will not be affected much by wage increases. But in general, with a 57% increase in the minimum wage, one should expect a more than 20% increase in enterprises’ expenditures. Water, electricity and gas costs are also on the rise. So there is a fear of downsizing and shutting down of some small factories.”

The TCCIM member said a loss-making automotive industry will suffer immensely from the rise in wages but would continue production. 

“However, SMEs will be at risk of shutdowns,” he said. 

Latest data released by the Statistical Center of Iran show the annualized inflation in the country is hovering around 40%.

  

Deputy Industries Minister Reza Mohtashamipour was the next speaker who described energy supply as the most serious challenge facing Iranian steelmakers.

He explained that the power cuts experienced by domestic industries last year was due to shortage of gas.

Calling for strict energy management, he said, “This year will see more restrictions for industries.”

The Oil Ministry and National Iranian Gas Company put pressure on steelmakers and mining firms to drastically cut gas consumptions in winter.

Specifically, Chadormalu Mining and Industrial Company was asked to keep its gas consumption below 30,000 cubic meters per day until further notice. Since the quota was less than 1% of the heavyweight mining firm’s gas consumption under normal conditions, the restriction practically meant cessation of production in Chadormalu, inflicting huge losses in lost production.

Certain companies were restricted for longer periods, while others were less affected. 

Producers of direct-reduced iron were the prime target of the restrictions due to their energy-intensive nature. Since DRI is considered a strategic and key product in the steel industry, the measure impacted the entire steel production chain and led to a decline in output of steel products and rising prices in the market.

With the decline in temperature across Iran, gas consumption in households set a record high.

This was not the first time that industries, especially steelmakers, faced power restrictions. In the summer of last fiscal year (July 23-Sept. 22, 2021), steel production declined by 40% compared with the previous quarter (March 21-June 22) due to electricity cuts amid record high domestic consumption.

In a letter to the Supreme National Security Council, ISPA put steel mills’ losses due to power outages at $6 billion from the beginning of the last Iranian year (March 21) to Sept. 12.

According to ISPA, 82 days of productions were lost during the period due to power outages and 300,000 direct and indirect jobs were lost or restricted, the news portal of the association reported.

Summer demand led to a severe power and water shortage in summer in most regions, resulting in blackouts and dry taps.

The new record came as high temperatures nationwide drove general electricity consumption to new heights in summer, prompting authorities to prioritize domestic users over industries in supplying power.

As the manufacture of steel and related products is an energy-intensive process, steel and cement production plants were subsequently restricted by the Iran Power Generation, Distribution and Transmission Company and were only allowed to work at a fraction of their capacity within specified period.

  

According to the Iranian Steel Producers Association, the output of semi-finished products stood at 27.9 million tons in the fiscal 2021-22, 8% less compared with the corresponding period of last year.

Billet and bloom made up 16.66 million tons of total semi-finished production, down 11% year-on-year.

Slab output reached 11.24 million tons to register a 2% YOY decline. 

The output of finished steel decreased by 5% during the same period to 19.64 million tons. 

Long steel products had an 11.21 million-ton share in the output of finished steel products, posting a 3% decline compared with the similar period of last year.

Rebar production stood at 9.15 million tons (down 4% YOY) and was followed by beams with 1.22 million tons (down 2% YOY) and L-beam, T-beam and other types with 837,000 tons (up 1% YOY).

Production of flat steel with 8.49 million tons registered an 8% YOY decrease. 

Hot-rolled coil comprised 8.29 million tons in this category, showing a 6% YOY decline, followed by cold-rolled coil with 2.59 million tons, unchanged YOY, and coated coil with 1.5 million tons, up 2% compared with last year’s corresponding period. 

The output of direct-reduced iron stood at 30.33 million tons during the period under review, down 3% YOY.

Despite the decline in production, a total of 7.68 million tons of semi-finished steel products were exported from Iran in the fiscal 2021-22, up 25% compared with the previous year.

Billet and bloom had the lion’s share of semis exports with an aggregate of 5.1 million tons, up 12% compared with the previous year’s corresponding period. 

Slab exports amounted to 2.58 million tons during the period, up 62% year-on-year.

Exports of finished steel products grew by 20% to 3.4 million tons during the period.

Rebar accounted for the largest portion of finished steel products exported from Iran during the period, with 2.5 million tons. The total volume of Iran’s rebar exports experienced a 36% growth compared with the same period of last year.

Beam exports amounted to 145,000 tons during the period under review, down 15% YOY.

About 200,000 tons of L-beam, T-beam and other types were also exported from Iran during the period, up 6% YOY.

Hot-rolled coil exports amounted to 433,000 tons, registering a 20% decline compared with the year before.

Cold-rolled coil with 17,000 tons registered a 35% decline year-on-year and coated coil with 115,000 tons, up 46% YOY, was the other finished steel product exported from Iran.

Exports of direct-reduced iron increased by 25% YOY to 1.06 million tons, ISPA figures show.

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

 

Courtesy of Financial Tribune , First Iranian English Economic Daily ,May 11,2022