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Iran Metals Report Q3 2009Published by: Business Monitor International Published: Jul. 13, 2009 - 44 Pages Table of Contents
AbstractBMI’s latest Iran Metals Report forecasts a downturn in steel consumption and output in H209 as loweroil earnings lead to a slowdown in economic activity, while the re-election of President MahmoudAhmadinejad and the prospect of continued economic isolation will undermine efforts to attractinvestment in metals industries. However, despite the short-term odds being stacked against Iran, BMIremains optimistic about the long-term potential of the country’s steel industry. Aluminium productionwill fare less well in the long run due to a likely lack of electricity generation capacity, a problem thatproducers 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 to3.81mn tonnes, according to the World Steel Association. This represented a strong recovery from H208when output plummeted, dragging the total volume of output down 0.9% to 9.96mn tonnes. Averagemonthly output in 2009 has been the highest on record and in contrast to the global trend, which saw adecline 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 inrelation to ongoing projects in the oil, gas and petrochemicals industries. However, it is not a situationthat 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 ofthe global economy, which is seeing a protracted downturn. We believe that the drop in hard currencyearnings will lead to liquidity problems. As a result of the credit crunch, steel consumers will run out ofcash 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%. Theforecast decline in domestic demand will cause significant problems for Iranian steel mills, which may beforced to cut back output to under 50% capacity in order to prevent a collapse in prices. Stockpilingproduction would be a worse alternative since it raises costs and pushes the need to cut production furtherinto 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 Iranianmarket, rising 3.8% to 3.33mn tonnes, while heavy sections production will grow by an estimated 2.5% to1.92mn 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 sincethe 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 toprogress. 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 SouthAluminium Company’s (Salco, 49% Imidro and 51% Ghadir) 103,000tpa smelter, based in Asalouyehand due for completion in 2012. However, work on a new 276,000tpa smelter has been delayed due todifficulties in securing US$1bn of finance from foreign lenders. The Vian Steel Complex (Visco) wascommissioned in May 2009, with a billet production capacity of 550,000tpa. Visco is now Iran’s largestprivately-owned mini-mill, and operates a 70 tonne electric arc furnace, a 70 tonne ladle furnace, and afour-strand continuous casting machine. In May 2009, the Jafari Steel Group said construction of theJafari 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 ofestablishing an 800,000tpa hot strip mill. In May 2009, Mobarakeh Steel began an expansion project thatwill add an extra 1.2mn tpa of crude steel capacity and take its overall capacity to 5.4mn tpa within a yearof 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 withproject delays expected. BMI forecasts crude steel output reaching 28.4mn tonnes by 2013, up 280% over2008 levels, fuelled by a four-fold increase in rebar to 13.22mn tonnes. Nevertheless, the level of growthis still unprecedented in Iranian history and should transform Iran into a significant steel producer andexporter, provided it retains access to Gulf markets. By 2013, steel exports should exceed 1mn, up froman estimated 276,000 tonnes in 2008. At the same time, greater self-sufficiency should see steel importsplunge halve over the 2008-2013 period. Get Full Details About This Report >> |
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