Iran’s steel market is grappling with significant turmoil as a combination of domestic economic policies, global pressures, and shifting market dynamics creates an increasingly precarious environment for producers and exporters alike.
The recent decision by the Iranian Commodity Exchange to halt billet purchases has triggered a sharp decline in demand, even as billet prices reach record highs. At the same time, steelmakers are contending with escalating production costs. A new mandate now requires steel producers to purchase gas exceeding their quota at a 30% FOB Persian Gulf premium—a steep increase from the previous 10% surcharge. This policy, introduced amidst a nationwide gas shortage, is further hampering production and contributing to rising costs.
As production scales down, the per-unit cost of steel continues to climb, straining the finances of Iranian producers. Additionally, a surge in other operational expenses, including utilities and financing costs, is compounding the industry’s challenges. Many factories have turned to sukuk bonds to secure funding, but with rates surpassing 43%, this strategy offers little relief.
On the export front, Iranian steelmakers face mounting pressure from competitive Chinese exports, particularly in Far Eastern markets, where cheaper alternatives are reducing demand for Iranian steel. This competitive disadvantage is amplified by the lingering effects of sanctions targeting the steel sector, a key export industry for Iran. The threat of renewed U.S. sanctions has further complicated the already fragile export landscape, creating uncertainty for producers seeking to access international markets.
Domestically, weak demand is exacerbating the oversupply in the billet market, leaving mills with surplus inventory and limited options. Meanwhile, the sheet metal segment faces a distinct set of challenges, as a sudden influx of cheap slab supplies has disrupted pricing and market stability.
Political tensions have further heightened caution across the sector, driving steel demand to its lowest levels in recent memory. The industry is in desperate need of a stimulus to stabilize operations and reinvigorate both domestic and export activities. However, with the global market still reeling from a prolonged recession, the outlook remains uncertain.
Amid these challenges, some observers argue that an adjustment in the exchange rate could provide temporary relief by potentially lowering free market prices and boosting exports. However, historical trends suggest that such measures would likely lead to eventual price alignment with the free market, offering only a short-term solution.
Comments
No comment yet.