The Forum for Partners in Iran's Marketplace

September 2017, No. 85

Mines & Metals

Planning Big for Iranian Steel;
Targeting 55 mt of Steel Production Annually

Iranian Steel Demand Expected to Rise 6% to 21.255 mt in 2018

According to Iranian Mines and Mining Industries Development and Renovation Organization (IMIDRO), Iranian crude steel production capacity grew 32% from fiscal year March 2013-14 to 29.8 million tons (mt) in the last Iranian year (ended March 20, 2017) and is expected to reach 31 mt by the end of the current fiscal year.

Steel production rose 15% during the same four-year period from 16.1 mt to 18.5 mt.

IMIDRO forecasts production to remain more or less the same this year. A comparison of steelmaking capacity and actual production brings into light the industry’s capacity utilization ratio, a key indicator of the sector’s health.

In capacity utilization, the Iranian steel industry has mostly moved against the global trend. The ratio’s only growth was recorded in the fiscal March 2014-15, as it grew from 72% the year before to 78%.

It has been on a downtrend ever since, dropping to 62% last year and is forecast to shed another 2% this year. The global utilization ratio, on the other hand, is recovering from its low of 65% in 2015 to 73% in 2016.

It is expected to stand at 72% for 2017, according to World Steel Association. What this indicates is that Iran is creating more steelmaking capacity than it can use, meaning higher operational costs and lower competitiveness.

This trend is likely to continue, considering that any growth in steel demand in the recession-hit construction sector, the main driver of steel consumption in Iran, seems unlikely to keep pace with steel expansion trend.

In its latest report titled “Short Range Outlook for 2017-18”, the World Steel Association forecasts that Iranian steel demand will increase by 4.9% to 20.04 mt in 2017 and increase to 6% in 2018 with 21.255 mt.

Demand growth would still be too low to boost production. Here, exports may be the industrys path to salvation, as they are the only alternative to the slump-stricken local market. Iranian mills exported over 3.74 mt of semis and 1.79 mt of steel products in the last fiscal year, registering a 108% and 16% growth respectively compared to the preceding year, the Iranian Steel Producers Association reported.

Thailand, the UAE, and Taiwan were the main customers of Iranian steel, accounting for 16%, 12% and 11% of 5.53 mt of total exports, according to IMIDRO.  

Italy with 9%, Oman with 7%, China with 7%, Iraq with 6%, Afghanistan with 5%, Jordan with 3%, Turkey with 3%, Egypt with 3%, Brazil with 3%, Spain with 2%, Morocco with 2% and Turkmenistan with 2% followed.

Nonetheless, the government seems intent on pursuing its ambitious steel capacity expansion plan to become the world’s sixth largest steelmaker, as part of its 20-Year Vision Plan (2005-25). It entails an annual production of 55 mt of crude steel and 20-25 mt of exports per year by the deadline.

Iron ore concentrate production capacity grew 54% during the same four-year period under review to 44.35 mt in the last fiscal year. 

Production grew only about 30% during the period to stand at 31.36 mt last year. This brings capacity utilization ratio to 71% from the high of 84% four years ago.

For pellets, output capacity grew 45% over the four years to reach 32 mt last year. Production was up 23% to 25.62 mt last year. Therefore, capacity utilization ratio stood at 80% last year, while it hovered above 95% for the three preceding years. 

Planning Big: 55 mt Annual Production Target

By possessing 2.7 billion tons (bt) of proven iron ore reserves containing 1.5 bt of iron and estimated total reserves of 4.5 bt, Iran is standing in the 10th rank of world ranking table of iron ore reserve holders. Steel making business in Iran can enjoy amazing advantages of large domestic market, low energy costs and educated work force and great iron ore reserves. With 16 mt crude steel output in 2015, 14th is Iran’s position in crude steel producing countries ranking.

Steel is a strategic commodity for the country of about 80 million. It is crucial for a developing country to meet steel demand which comes from massive infrastructure development. For Iran, iron and steel industry is a basic industry important and necessary for national economy growth and always has been considered as a supporting industry for realizing the industrialization of the country.

Iron and steel industries are intensive in terms of technology, capital, resources and energy, and its development requires a comprehensive balancing of different kinds of external conditions. In terms of mineral and energy resources Iran enjoys its high reserves of iron ore and energy resources of natural gas and crude oil but when it comes to technology and financial resources, the industry faces a lot of problems. 

Iran Aims to Become World’s Sixth Largest Steelmaker by 2025

Largest DRI Producer

Iran is the largest producer of gas based DRI in the world. According to the latest report of MIDREX, in 2014 Iran’s DRI output was 14.55 mt which after India with production of 17.31 mt was the second largest producer of DRI.

It should be noted that a large quantity of the DRI made in India is produced in rotary kilns using coal; therefore, Iran had the largest production by plants using natural gas as the fuel/reluctant. However by commissioning new plants, Iran will be dominant producer of DRI in the world. There are a lot of Direct Reduction based plants under construction. More than 90 percent of Iran’s targeted 55 mt capacity is based on direct reduction technology.
Iran first took over India after the release of the WSA’s DRI output for the month of March. World Steel Association’s production figures are based on data collected from 14 countries, which accounted for approximately 90 percent of the global DRI production in 2014. India has reduced its DRI production because of the coal-based technology and related additional expenses that appeared after the government introduced environmental fees this financial year. As a result, Indian producers are switching to usage of alternative raw materials. The country’s seven-month DRI production was down 22.7 percent year-on-year to 8.2 mt.

2025 Plans

To keep pace with demand in its industry and an economy being billed as one of the emerging Next Eleven and relying on its iron ore reserves and other significant advantages, Iran is planning big for the steel industry to increase its steel production to 55 mt per year by 2025.
Meanwhile, Iranian Mines and Mining Industries Development and Renovation Organization (IMIDRO) unveiled a comprehensive plan aimed at increasing steel production capacity in southern Iran. According to IMIDRO, new steel making plants will be established in Chabahar, Qeshm and Bandar Abbas regions.
To meet 55 mt of steel production, 60 mt of sponge/pig iron, 92 mt of pellets, 90 mt of concentrate and 159 mt of iron will be required in the entire value chain of iron ore to crude steel.

According to Iran’s Comprehensive Steel Plan, there will be deficit of 43 mt of iron ore and 18 mt of pellets which should be imported. It is estimated that Iran’s steel consumption will be doubled to 41 mt from its current 20 mt leaving 14 mt of oversupply which will be available for exports.
The most significant challenge of steel development based on 2025 plan will be lack of finance sources from government. It is clear that Iranian steel companies and iron ore producers need to attract equity funding and loans from offshore groups. 

More Investment Needed to Raise DRI Production Capacity

Iran needs more investment to increase production capacity for direct reduced iron and most of the new investment in the industry should be directed to DRI expansion, according to Rasoul Khalifesoltani, secretary of the Iranian Steel Producers Association, speaking at a conference in Tehran in May.

“Although we do not agree with export of sponge iron, I believe that DRI export is quite attractive for Iranian producers,” he said.

“Turkey, the neighboring country, is a huge importer of ferrous scrap and it could replace a portion of its scrap imports with sponge iron, if we develop our production enough,” he said. “There is demand for at least 10 mt/year of sponge iron in Turkey,” he estimated.

“On the other hand, shortage of sponge iron is a challenge for Iranian expansion projects and more DRI modules should be installed in Iran,” he said.

Khalifesoltani noted that the Iranian steel development expansion to 55 million mt/year capacity by 2025 is being realized but new investment for production of 11 million mt/year of iron ore concentrate, 6 million mt/year of iron ore pellet and 12.5 mt/year of DRI is still needed.

He also predicted that Iran’s capacity to export steel will be increased to some 20 mt/year proportional to the increase in output up to 2025, which will comprise about 11 mt/year of flat products, 6.5 mt/year of longs and about 2.5 mt/year of semi-finished products.

As a result of cheap natural gas, Iran is one of the world’s biggest producers of DRI. The country produced some 16.01 mt of DRI in 2016, up 10.1% year on year.

Some 85% of Iran’s steel industry is based on direct reduction technology for steelmaking using natural gas instead of coal.

Iranian mines and metal state holding IMIDRO, in February said it is negotiating with Japan’s Kobe Steel to use its technology at reducing water and energy consumption by Iranian DRI modules. 

Iran Steel Production 1991-2017

Steel production in Iran decreased to 1785.30 thousand tons (tt) in June from 1790 tt in May 2017. Steel production in Iran averaged 767.23 tt from 1991 until 2017, reaching an all-time high of 1790 tt in May of 2017 and a record low of 166 tt in September 1991. 

June 2017 Crude Steel Production

World crude steel production for the 67 countries reporting to the World Steel Association (worldsteel) was 141.0 mt in June 2017, a 3.2% increase compared to June 2016.

World crude steel production was 836.0 mt in the first six months of 2017, up by 4.5% compared to the same period in 2016. Asia produced 576.8 mt of crude steel, an increase of 4.8% over the first half of 2016. The EU produced 86.1 mt of crude steel in the first half of 2017, up by 4.1% compared to the same period of 2016. North America’s crude steel production in the first six months of 2017 was 57.4 mt; an increase of 2.4% compared to the first half of 2016. The C.I.S. produced 49.7 mt of crude steel in the first six months of 2017, a decrease of -2.5% over the same months of 2016. 

·         World - Crude steel production reached 141 mt in June 2017, up by 3.2% over June 2016 (YoY)
World crude steel production was 836.0 mt in the H1-2017, up by 4.5% YoY

·         Asia - Produced 576.8 mt of crude steel in H1-2017, an increase of 4.8% YoY
China - Crude steel production was 73.2 mt, up by 5.7% YoY.
Japan - Produced 8.4 mt, down by -4.3% YoY

·         EU - Produced 86.1 mt of crude steel in H1-2017, up by 4.1% YoY
Germany - Produced 3.6 mt, down by -1.7% YoY
Italy - Produced 2.1 mt, up by 1.8% YoY

·         Middle East
- 3 mt, up by 7.1% YoY
Iran - 1.8 mt, up by almost 16% YoY
- Produced 6.7 mt, down by -1.7% YoY

·         Brazil - Produced 2.9 mt, up by 13.2% YoY

·         CIS - Produced 49.7 mt of crude steel in H1-2017, a decrease of -2.5% YoY


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  September 2017
No. 85