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Iran Metals Report Q3 2009
Business Monitor International, July 2009, Pages: 44
The Iran Metals Report provides industry professionals and strategists, corporate analysts, metals associations, government departments and regulatory bodies with independent forecasts and competitive intelligence on Iran's metals industry
The 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, the analyst 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 the analyst 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, forecasts see the 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 is expected to fall 13.4%. Although this may seem bearish, it is not the worst case scenario and the 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 the analyst remains doubtful that the industry will meet its target of 40.5mn tpa capacity by 2012 with project delays expected. Forecasts see 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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