IRON and STEEL
The Iranian steel industry is pushing ahead with its ambitious plan to become the world’s sixth-largest steelmaker as per its 2025 Vision Plan.New crude steel and raw material output capacity are being added every year and production is following a growing trend, reported by Financial Tribune.
Maintaining a steady growth to realize the target is a complicated task. The raw material supply is unbalanced across the spectrum,production is growing at a slower pace compared to capacity making, steel usage is falling, and exports need to increase further.
For the last two years, Foolad Technic International Engineering Company has been studying the Iranian steel market and
industry and reporting on the expansion progress at the request of various companies and organizations. FIECO’s project is titled
“Monitoring the Comprehensive Steel Plan”.
The Comprehensive Steel Plan was first floated in 2004 and integrated into the Fourth Five-Year Development Plan (2004-9) the following year. The plan was revised in 2007 under the title “Iran’s Industrial Development Strategy,” in which the 55mt output target was first introduced.The macro-planning did not exactly go as expected, as more than a few issues such as the imbalance in steel production chain surfaced. Accordingly, FIECO stepped in to monitor the industry and provide a detailed report of its shortcomings. Its second report on the steel plan was published in early June.
Unbalanced steel production chain
The first part of the report indicates nominal steel and raw material capacity and real output during the previous four years, from 2013-14 to 2016-17. Nominal crude steel capacity remained unchanged at 22.5mt for the first two years of the period. It increased to 23.7mt in the third year and jumped to 29.8mt in 2016-17.Also, 4.82mt are expected to be added to the capacity by the end of the first half of the current fiscal year (March 21-Sept. 22).
Crude production experienced a seesaw trend,as it stood at 16.10, 17.54, 16.7 and 18.51mt during the four years, respectively.
As for direct-reduced iron, capacity grew steadily, rising at 19.65, 22.15, 22.3 and 24.45mt respectively. It is bound to increase
by another 6.4mt by the end of the first half. Moreover, except 2015-16, DRI output increased an average of 1mt every year to
18.51mt last year.
Struggling with pellet shortage and the necessity of imports was a common theme for mills in the past. Statistics indicate that
pellet production capacity remained nearly unchanged from 2013-14 to 2015-16 at 22mt. However, it rose to 32mt last year
and will have 8.22mt added to it as a host of new plants is set to come on stream by late September. The output of such a highly
sought-after material was mostly close to its capacity, standing at 20.76, 21.57, 21.50 and 25.62mt, respectively.
The imbalance in production chain can be witnessed in the case of iron ore concentrate,where expansion happened too rapidly and left behind pellet development.
Concentrate capacity rose by about a million ton to reach 30.27mt in 2014-15 and suddenly jacked up to 43.4mt the next year where it stabilized.
The sector also has 2.2mt of capacity coming its way soon.As for production, stats indicate it barely had time to react to immediate capacity boosts and was about 13mt less than last year’s capacity.
Raw material needs
According to FIECO, Iran will require production capacities of 168mt of iron ore,86mt of concentrate, 87mt of pellet and 57mt of DRI to be able to materialize a 55mt steelmaking capacity.
By analyzing Iran’s development projects,FEICO has calculated the current capacity,the best-case scenario added capacity and the deficiency in each sector.
There is currently an 80-million-ton iron ore output capacity in place and if all the expansion projects the government has
announced were to come on stream, the number would rise to 130mt. A 38-million-ton shortage to reach 2025 target still looms large.
As for concentrates, deficiency stands at 16mt,as in the best case, a 26-million-ton capacity will be added to the 44mt already in place.Pellet is doing better since the potential upcoming capacity of 45mt is larger than the current 38-million-ton capacity. That would leave pellet-makers with 5mt to add.
Moreover, DRI deficiency is projected to stand at 9mt. Potential upcoming capacity is 20mt and current capacity is 28mt.
FIECO projects that €8.98bn of investments are required to cover the deficiencies and reach the 2025 steel target. The total numbers break down to €3.78bn of investment needed for crude steel capacity-making, €1.653bn for DRI, €1.304bn for pellets and €1.969bn for concentrate.
Moreover, €14.07bn will be needed to develop the industrial infrastructure. Railroad developments account for €4.8bn of the
aggregate figure, €4.26bn for electricity,€1.91bn for water, €1.3bn for ports, €980mn for mining equipment, €560mn for roads and
€268mn for gas.
Necessity of exports
Another part of the 2025 target projects is exporting 20mt of steel, as the whole 55mt are simply beyond Iran’s local demand.
According to FIECO, Iranian semi-finished steel exports have followed an upward trend ever since the 2013-14 fiscal year, reaching from about 300,000t to nearly 4mt last year.
Finished steel shipments almost set the same record, with exports only dropping about 300,000t to 1.99mt last year.The report envisions three scenarios for Iran’s steel export expansion. The first considers maximum export potential, calculated using
Iran’s trade track record and destination markets’ potential demand, which stands at 9.5 million tons/year.
The second is based on Iran’s share of the global steel market, putting the number at 11.2 million tons/year.
Moreover, the third most optimistic one rests on the industry’s average growth in exports for the last five years, which brings the number up to 16.6 million tons/year.
All three scenarios would yield results far from 20 million tons/year, but boosting exports by any means necessary should still be on top of the industry’s agenda.
Call for more large-scale production
Out of the current 29.7mt crude capacity,3.3mt of it pertains to plants with capacities of 200,000t and less, which predominantly utilizes induction furnaces. The small-scale plantsoffer lower prices and of course lower quality, too, as the steel made using
induction furnaces does not possess the quality to be able to meet all downstream demands.
About 76% of Iranian steel is made using EAF with DRI feedstock, and the percentage is bound to reach 80% by 2025.
FIECO’s report suggests “industry policymaking to keep up with the field’s technological development,” indicating that steelmakers should move toward higher quality and more competitive pricing by using a method that utilizes all of Iran’s competitive advantages, such as low energy costs.
2015-17 Rollercoaster ride
In 2015, the installed global steelmaking capacity grew compared to the year before, but production marked a significant decline. This was the first time that the global steel output shrank ever since the 2008 crisis.
China’s massive investments and incentive policies prevented the country’s production from dropping in 2008 and were successful in boosting output and keeping the market up. However, in 2015, China had become a behemoth. Its ever-growing production, coupled with the global overreliance on Chinese production and exports, was one of the leading causes of global industry depression.
Usage shrank worldwide, and demand dropped. China’s dumping strategies made things no better and eventually eviscerated prices. Many steelmakers were simply unable to keep up and continue, and especially in Iran, dropping iron ore prices also drove many miners out of business.
Things improved the next year. Iron ore prices ended 2016 higher, as Chinese ore demand and steel usage grew. Interestingly, China’s exports during the year were down compared to 2015, giving exporters worldwide
a chance to breathe.
FIECO’s report indicates that no significant turn in the market trend is expected to occur in 2017. China’s growing debt to GDP ratio will mean fewer incentives in the market for the year and lower growth.
Markets are also skeptical whether US President Donald Trump’s election promise to inject $1 trillion into infrastructure development will materialize.
Iron ore supply will remain unchanged, and prices will correct the bubble.The Iranian steel industry then will only have its policymaking to watch.