Abstract
Iran's steel industry continues to buck global trends, with large increases in output generated by growth in
steel-using industries, notably in the energy sector, which is continuing its expansion. However, BMI's
latest Iran Metals Report anticipates a slowdown in production in H209 and H110 due to economic and
political uncertainties, but mid-2010 increases in capacity that should help the country become less reliant
on imports over the medium term.
In H109, Iranian steel output increased 12.1% year-on-year (y-o-y) to 5.65mn tonnes, although there were
signs that growth was slowing in Q2. In June, output was up 9.4% y-o-y to 910,000 tonnes, but down
4.2% from January. Nevertheless this represented a strong recovery from H208, when output plummeted
and dragged the total volume down 0.9% to 9.96mn tonnes. Average monthly output in 2009 has been the
highest on record and in contrast to the global trend which saw the decline in production occur after the
onset of the financial crisis in September 2008. Growth has been fuelled by construction, including large
new industrial facilities, as well as rising production of vehicles and consumer goods. Leading Iranian
carmaker Saipa has forecast 10% growth in vehicle production in the 2009/10 Iranian year (which begins
in March).
Although output has grown, Iran's high level of demand is leading to a large influx of steel, indicating
that local steelmakers are still failing to take full advantage of or meet demand from the growing market.
While Iran's privately-owned rolling mills produced 1.1mn tonnes of finished steel products, up 22%
y-o-y, they were still producing at around a third of their 12mn tonnes per annum (tpa) capacity, while the
country imported 2mn tonnes of steel in the quarter. Hot-rolled coil imports are set to grow by 37% y-o-y
to 1.6mn tonnes in 2009, mostly from Russia, Ukraine and China.
In light of the Iranian steel industry's ongoing capacity expansion and rising domestic demand, BMI
forecasts a 7.1% growth in crude steel output in 2009 to 10.68mn tonnes, followed by a significant
slowdown in 2010 when output will grow by only 2.5% to 10.94mn tonnes. The slowdown is likely to
begin in H209 as investor sentiment falters in an increasingly uncertain political and economic
environment. Through its dependence on oil export revenue, Iran's economic health is intrinsically tied to
the state of the global economy, which is seeing a protracted downturn. We believe that the drop in hard
currency earnings will lead to liquidity problems. As a result of the credit crunch, steel consumers will
run out of cash and financial support as well as being faced with weak demand for their products.
Industrial project delays have been a constant problem for Iran, even during the best of times. The decline
will be particularly felt by the Iranian automotive industry, an important consumer of Iranian steel and
aluminium, where the strong growth seen in recent years will come to a juddering halt. BMI believes
H209 output will be on average around 830,000 tonnes per month, nearly 11% less than in H1. Average
monthly output should be higher in H210, assisted by capacity expansion mid-year. Output will grow
faster than demand as Iran becomes more self-sufficient. As such, BMI believes that imports will have
peaked in 2009 and are set to stagnate or fall.
Crude steel capacity is scheduled to rise to 17.7mn tpa in September 2009 as a result of development
projects by Mobarakeh Steel, Esfahan Steel, and Khuzestan Steel coming on stream, and through the
commissioning of Hormozgan Steel, a new steel plant in Bandar Abbas. Consequently, the industry is set
for high levels of over-capacity in the near future. Rebar production will continue to lead the Iranian
market, rising 6.5% to 3.34mn tonnes, while heavy sections production will grow by an estimated 5.6% to
1.99mn tonnes. The main loser will be in the production of tubes, which BMI expects to fall 13.4%.
Although this may seem bearish, it is not a worst case scenario and BMI's outlook has improved since the
previous quarter, when we forecast an 8.7% drop in crude steel output.
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