Abstract
BMI’s latest Iran Metals Report forecasts a downturn in steel
consumption and output in H209 as lower
oil earnings lead to a slowdown in
economic activity, while the re-election of President Mahmoud
Ahmadinejad
and the prospect of continued economic isolation will undermine efforts to
attract
investment in metals industries. However, despite the short-term
odds being stacked against Iran, BMI
remains optimistic about the
long-term potential of the country’s steel industry. Aluminium
production
will fare less well in the long run due to a likely lack of
electricity generation capacity, a problem that
producers believe can only
be overcome with the development of domestic nuclear energy.
In the first
four months of 2009, Iranian crude steel production held up well and rose
12.8% y-o-y to
3.81mn tonnes, according to the World Steel Association.
This represented a strong recovery from H208
when output plummeted,
dragging the total volume of output 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 a
decline in production occur after the onset of
the financial crisis in September.
Growth in steel production is being
encouraged by the strong demand from construction, particularly in
relation to ongoing projects in the oil, gas and petrochemicals industries.
However, it is not a situation
that BMI believes can be sustained in an
increasingly difficult economic and political 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 poor demand for their products.
With a belated downturn
expected in H209, BMI forecasts crude steel consumption growth falling to
5%
in 2009 from 15% in 2008 while finished steel consumption growth will
fall to 5.1% from 15.2%. The
forecast decline in domestic demand will
cause significant problems for Iranian steel mills, which may be
forced to
cut back output to under 50% capacity in order to prevent a collapse in
prices. Stockpiling
production would be a worse alternative since it
raises costs and pushes the need to cut production further
into the
future. Depressed consumption will keep crude output growth at 2.3%, totalling
10.2mn tonnes,
with hot-rolled production up by just 2.4% to 9.52mn
tonnes. Rebar will continue to lead the Iranian
market, rising 3.8% to
3.33mn tonnes, while heavy sections production will grow by an estimated 2.5%
to
1.92mn 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 the
worst case scenario and BMI’s outlook has improved since
the
previous quarter, when we forecast an 8.7% drop in crude steel output.
A
number of major capacity-raising projects in the steel and aluminium
industries are continuing to
progress. Iranian Ghadir hopes to bring its
800,000 tonnes per annum (tpa) direct reduced iron (DRI)
plant, located
near Ardakan in Yazd province, online by March 2010. In May 2009 work started
on South
Aluminium Company’s (Salco, 49% Imidro and 51% Ghadir)
103,000tpa smelter, based in Asalouyeh
and due for completion in 2012.
However, work on a new 276,000tpa smelter has been delayed due to
difficulties in securing US$1bn of finance from foreign lenders. The Vian
Steel Complex (Visco) was
commissioned in May 2009, with a billet
production capacity of 550,000tpa. Visco is now Iran’s largest
privately-owned mini-mill, and operates a 70 tonne electric arc furnace, a 70
tonne ladle furnace, and a
four-strand continuous casting machine. In May
2009, the Jafari Steel Group said construction of the
Jafari 450,000tpa
steel plant had entered its final stages and would be commissioned by
July.
Chaharmahal Bakhtiari Auto Sheet Company (23% Iran Khodro, 22%
Sepia, 45% Imidro and 10%
Imidro’s pension fund) is due to be
commissioned in September 2009 with a 400,000tpa galvanising line.
It is
also planning to commission an 800,000tpa cold rolling mill and is examining
the feasibility of
establishing an 800,000tpa hot strip mill. In May 2009,
Mobarakeh Steel began an expansion project that
will add an extra 1.2mn
tpa of crude steel capacity and take its overall capacity to 5.4mn tpa within
a year
of commissioning. The project is set to be completed in Q111.
Increased domestic capacity should ensure decreased dependence on imports and
growth in output,
although BMI remains doubtful that the industry will
meet its target of 40.5mn tpa capacity by 2012 with
project delays
expected. BMI forecasts crude steel output reaching 28.4mn tonnes by 2013, up
280% over
2008 levels, fuelled by a four-fold increase in rebar to 13.22mn
tonnes. Nevertheless, the level of growth
is still unprecedented in
Iranian history and should transform Iran into a significant steel producer
and
exporter, provided it retains access to Gulf markets. By 2013, steel
exports should exceed 1mn, up from
an estimated 276,000 tonnes in 2008. At
the same time, greater self-sufficiency should see steel imports
plunge
halve over the 2008-2013 period.
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