Iranian Steel Industry Strengthens

At just under 18 million tonnes last year, Iran accounted for more than half of all the steel produced in the Middle East and is becoming an important player on the world stage. It is also growing rapidly with production up 90% over the past ten years.  This growth has continued into this year with crude steel production in Q1 increasing by 13% year on year, more than double the global rate of growth.

Iran, as with many rapidly developing steel producing nations, has traditionally imported more than it exported but, partly due to its chequered relationship with the international community, the country is also more self-sufficient than many nations as it is unable to rely on being able to access Western products under sanctions. Imports of around 4.5 million tonnes per year are dwarfed by the domestic production of 18 million tonnes.  Unlike imports, which have remained fairly stable at this level over the past few years, the country has started to export more tonnage as it finds itself less encumbered by international sanctions.

In 2016, for the first time, Iran exported more than it imported with exports of 5.7 million tonnes representing a 49% increase over the prior year. This is a trend that has continued into 2017 with Q1 exports showing a further 20% growth when compared to Q1 2016.  The vast majority of these exports, some 79% of the total so far this year, have been ingots and semis but the country has also exported significant tonnage of rebar and heavy sections.

As would be expected, Iran has traditionally exported these semi-finished products to other countries in the Middle East and North Africa but so far in 2017 it is notable that Iranian producers are becoming bolder in their search for external markets and the main growth areas have been Thailand, Taiwan and Indonesia. The same cannot be said for the growth in exports of rebar and heavy sections with the increase in shipments instead heading to Afghanistan and Iraq, no doubt filling demand resulting in efforts to rebuild in those nations following years of turmoil.

Conversely in Q1 this year, after a few years of stable tonnages, imports nearly halved despite a rise in demand. Traditionally the country is an important market for Russian, Chinese, Indian and Korean flat products but evidence suggests more or both HR and CR products have been sourced internally.

With enviable reserves of natural resources, being favourably situated between Europe and Asia, and having a growing internal steel industry, Iran has the potential to be a significant force on the global market. Incumbent president Hassan Rouhani’s recent re-election suggests there is a desire within Iran to integrate further into the international community, thereby increasing the risk of potential disruption to the international steel market from Iranian steel; but the current US president’s recent comments during his visit to Saudi Arabia suggests that the USA may potentially not be a viable market for Iranian goods should he enact embargos against the country, meaning they would likely have to look east to Asia or west to Europe for markets for their growing exports.

Iran Open for Business

Iran has been one of the fastest growing steel producing countries in the world over recent years.  Crude steel production in the country increased by 65% over the past ten years and at 16.1M tonnes, Iran has become the fourteenth largest producer globally with by far the greatest output in the Middle East.  This growth has continued so far in 2016 with production up nearly 10% in the first ten months of the year.

 

Part of the reason for this rapid development of their steel industry is likely to be the relative isolation the country has found itself over the years due to economic sanctions, along with a ready supply of iron ore which has enabled them to become relatively self-sufficient.  With sanctions lifting this year, demand for steel in the country is likely to grow considerably in the coming years.

 

This isolation and growth in the domestic industry means that Iran imports relatively low quantities of steel which reduced from 12.7 million tonnes in 2007 to just 3.1 million tonnes in 2013.  Since then, imports have risen slightly to just over 4 million tonnes each year and have remained relatively stable, although in the first nine months of this year they have grown by more than 20%.  In a story that is familiar in many parts of the world, much of this growth has been in “alloy” HRC, plate and CRC from China.

 

Shipments from China have grown by 47% to 578K tonnes so far this year with the country representing the second largest source of steel with only the UAE shipping more.  In actual fact though, a closer inspection of the shipments from UAE reveals that the bulk of this tonnage is likely originating from somewhere else with the UAE acting as an intermediary.  A significant proportion of the increase in imports from the country appears to be the “alloy” flat products that Chinese producers export in order to qualify for tax rebates so it seems reasonable to assume that much of the 29% growth seen in imports from the UAE also originate in China.

 

The vast majority of production in the country is destined for the domestic market, although Iran does seem to be starting to export more.  At its lowest level in 2012, they were exporting just 260 thousand tonnes of steel but since then this has been on the increase.  In 2015 exports hit 3.8 million tonnes and have since grown even more so far this year.  In the first nine months of 2016 alone, the country has exported 4.3 million tonnes, more than the whole of 2015 and representing a year on year growth of 41%.

 

The majority of this growth has come from increased shipments of ingots and semis with larger quantities of ingots being shipped to other Middle East nations; a growth of slabs being exported to Morocco, Brazil, Thailand and Taiwan, and a rise of other semis going to Oman, Thailand and Taiwan.

 

The Iranian steel industry is at an interesting point in its development.  Since economic sanctions were lifted at the start of this year, the country is becoming increasingly “open to business” which should offer opportunities for overseas steel producers to exploit a new and growing market. Over a five year period ending in 2020, Iran is seen to be one of the fastest growing steel sheet markets in the world.  The country’s steel sheet consumption growth is forecast to be more than double the world average over 2015-2020. Due to the relative strength and low-cost nature of Iranian steel producers, however, it seems likely that much of any growth may be taken up by domestic production and the only country so far that has managed to exploit the opportunity here to any great degree is predictably China.

 

Indeed, as Iranian steel producers become more outward looking, they may represent a threat in overseas markets although to date they have only really been active in the semi-finished steel markets but with shipments of slab to Thailand growing considerably it seems they have picked up some of the business that was being supplied by SSI in the UK.