World  Business and Economic Analysis 




The Iranian steel industry is pushing ahead with its ambitious plan to become the world’s sixth largest steelmaker as per its 2025 Vision Plan. New crude steel and raw material output capacity are being added every year and production is following a growing trend.
Maintaining a steady growth to realize the target is a complicated task. The raw material supply is unbalanced across the spectrum, production is growing at a slower pace compared to capacity-making, steel usage is falling and exports need to increase further.
For the last two years, Foolad Tehnic International Engineering Company has been studying the Iranian steel market and industry, and reporting on the expansion progress at the request of various companies and organizations. FIECO’s project is titled “Monitoring the Comprehensive Steel Plan.”
The Comprehensive Steel Plan was first floated in 2004 and integrated into the Fourth Five-Year Development Plan (2004-9) the following year. The plan was revised in 2007 under the title “Iran’s Industrial Development Strategy,” in which the 55-million-ton output target was first introduced.
The macro-planning did not exactly go as expected, as more than a few issues such as the imbalance in steel production chain surfaced.  Accordingly, FIECO stepped in to monitor the industry and provide a detailed report of its shortcomings. Its second report on the steel plan was published in early June.
 Unbalanced Steel Production Chain
The first part of the report indicates nominal steel and raw material capacity and real output during the previous four years, from 2013-14 to 2016-17.
Nominal crude steel capacity remained unchanged at 22.5 million tons for the first two years of the period. It increased to 23.7 million in the third year and jumped to 29.8 million tons in 2016-17.
Also, 4.82 million tons are expected to be added to the capacity by the end of the first half of the current fiscal year (March 21-Sept. 22). Crude production experienced a seesaw trend, as it stood at 16.10, 17.54, 16.7 and 18.51 million tons during the four years respectively.
As for direct-reduced iron, capacity grew steadily, standing at 19.65, 22.15, 22.3 and 24.45 million tons respectively. It is bound to grow by another 6.4 million tons by the end of the first half. And with the exception of 2015-16, DRI output grew an average of 1 million tons every year to 18.51 million last year.
Struggling with pellet shortage and the necessity of imports was a common theme for mills in the past. Statistics indicate that pellet production capacity remained nearly unchanged from 2013-14 to 2015-16 at 22 million tons. However, it rose to 32 million tons last year and will have 8.22 million tons added to it as a host of new plants are set to come on stream by late September.  
The output of such a highly sought-after material was mostly close to its capacity, standing at 20.76, 21.57, 21.50 and 25.62 million tons respectively.
The imbalance in production chain can be witnessed in the case of iron ore concentrate, where expansion happened too rapidly and left behind pellet development.
Concentrate capacity rose by about a million ton to reach 30.27 million tons in 2014-15 and suddenly jacked up to 43.4 million tons the next year where it stabilized.
The sector also has 2.2 million tons of capacity coming its way soon.
As for production, stats indicate it barely had time to react to sudden capacity boosts and was about 13 million tons less than last year’s capacity.
 Raw Material Needs
According to FIECO, Iran will require production capacities of 168 million tons of iron ore, 86 million tons of concentrate, 87 million tons of pellet and 57 million tons of DRI to be able to materialize a 55-million ton steelmaking capacity.
By analyzing Iran’s development projects, FEICO has calculated the current capacity, the best-case scenario added capacity and the deficiency in each sector.
There’s currently an 80-million-ton iron ore output capacity in place and if all the expansion projects the government has announced were to come on stream, the number would rise to 130 million tons. A 38-million-ton shortage to reach 2025 target still looms large.
As for concentrates, deficiency stands at 16 million tons, as in the best case, a 26-million-ton capacity will be added to the 44 million tons already in place.
Pellet is doing better since the potential upcoming capacity of 45 million tons is larger than the current 38-million-ton capacity. That would leave pellet-makers with 5 million tons to add.
And DRI deficiency is projected to stand at 9 million tons. Potential upcoming capacity is 20 million tons and current capacity is 28 million tons.
FIECO projects that €8.98 billion of investments are required to cover the deficiencies and reach the 2025 steel target. The total numbers break down to €3.78 billion of investment needed for crude steel capacity-making €1.653 billion for DRI, €1.304 billion for pellets and €1.969 billion for concentrate.
Moreover, €14.07 billion will be needed to develop the industry infrastructure. Railroad developments account for €4.8 billion of the aggregate figure, €4.26 billion for electricity, €1.91 billion for water, €1.3 billion for ports, €980 million for mining equipment, €560 million for roads and €268 million for gas.
 The Necessity of Exports
Another part of the 2025 target projects exporting 20 million tons of steel, as the whole 55 million tons are simply beyond Iran’s local demand.
A combination of galloping inflation, economic sanctions and the ill-famed Mehr Housing Scheme caused mortal harm to Iran’s construction sector, and consequently to steel demand.
Many steelmakers, especially long producers, are struggling to find buyers for their goods and look at exports as the only way forward. The scenario at home is unlikely to change until 2025, which further underscores the necessity of exports.
According to FIECO, Iranian semi-finished steel exports have followed an upward trend ever since the 2013-14 fiscal year, reaching from about 300,000 tons to nearly 4 million tons last year. Finished steel shipments nearly set the same record, with exports only dropping about 300,000 tons to 1.99 million tons last year.
The report envisions three scenarios for Iran’s steel export expansion. The first considers maximum export potential, calculated using Iran’s trade track record and destination markets’ potential demand, which stands at 9.5 million ton/year.
The second is based on Iran’s share of the global steel market, putting the number at 11.2 million tons/year.
And the third most optimistic one is based on the industry’s average growth in exports for the last five years, which brings the number up to 16.6 million tons/year.
All three scenarios would yield results far from 20 million tons/year, but boosting exports by any means necessary should still be on top of the industry’s agenda.
 Call for More Large-Scale Production
Out of the current 29.7-million-ton crude capacity, 3.3 million tons of it pertain to plants with capacities of 200,000 tons and less, which predominantly utilize induction furnaces. The small-scale plants offer lower prices and of course lower quality, too, as the steel made using induction furnaces does not possess the quality to be able to meet all downstream demands.
About 76% of Iranian steel are made using EAF with DRI feedstock and the percentage is bound to reach 80% by 2025.
FIECO’s report suggests “industry policymaking to keep up with the field’s technological development,” indicating that steelmakers should move toward higher quality and more competitive pricing by using a method that utilizes all of Iran’s competitive advantages, such as low energy costs.
 2015-17 Rollercoaster Ride
In 2015, the installed global steelmaking capacity grew compared to the year before but production marked a significant decline. This was the first time global steel output shrank ever since the 2008 crisis.
China’s huge investments and incentive policies prevented the country’s production from dropping in 2008 and were actually successful in boosting output and keeping the market up. But in 2015, China had become a behemoth. Its ever-growing output, coupled with the global overreliance on Chinese production and exports, was one of the main causes of global industry depression.
Usage shrank worldwide and demand dropped. China’s dumping strategies made things no better and eventually eviscerated prices. Many steelmakers were simply unable to keep up and continue, and especially in Iran, dropping iron ore prices also drove many miners out of business.
Things improved the next year. Iron ore prices ended 2016 higher, as Chinese ore demand and steel usage grew. And interestingly, China’s exports during the year were down compared to 2015, giving exporters worldwide a chance to breathe.
FIECO’s report indicates that no significant turn in the market trend is expected to occur in 2017. China’s growing debt to GDP ratio will mean fewer incentives in the market for the year and lower growth.
Markets are also skeptical whether US President Donald Trump’s election promise to inject $1 trillion into infrastructure development will materialize.
Iron ore supply will remain unchanged and prices will correct the bubble. The Iranian steel industry then will only have its own policymaking to watch.



French automaker Renault has registered a rather unprecedented increase in sales in Iran in the first quarter of 2017

Renault Group said sales in Iran rose by 161.5% in the first quarter of this year.

The group now has hold over 9% of the Iranian market, up 4.9 points, thanks to the success of its new models being sold at low prices compared to several other brands competing in Tehran and all major cities. This is up 0.6% since the 2016 figures were released.

Renault, in a press release, reclaimed its position as a major player in the saturated market last year, with increasing imports of fully built vehicles and also through partnership deals with the Industrial Development and Renovation Organization. The Paris-based firm also benefitted from the production of its latest Sandero and Sandero Stepway models in conjunction with Iran Khodro Group, the biggest carmaker in the country.

Renault’s proposal for the local market includes imports of fully built vehicles for bigger spenders, including the latest models available in all big markets. These include the upgraded Koleos large SUV, large Talisman models and range of Megane models (dubbed Scalia) in Iran.

Meanwhile the company plans, as part of its joint venture with IDRO, to produce three new models for the domestic market by the end of 2017 or early 2018.

These include the low-cost Kwid crossover and new models of Symbol and Duster.

A prelude to Kwid sales in Iran is in the Indian market, where the car was originally released. In the first quarter of that market Kwid registered 27,000 sales up 9.9%

The joint venture is due to produce 150,000 cars per year.

It was previously reported that Saveh, a city in Markazi Province (southwest of Tehran), would be the production center for the joint project.

Renault used to sell 10,000 cars in Iran market every month till 2013 before the international sanctions were tightened in 2011 and 2012.

 Global Sales

Groupe Renault (including Lada) worldwide registrations increased by 15.8% in the global market y/y.The group’s share of the world market now stands at 3.8%, up 0.4 points on 2016.

The Renault and Dacia brands set new sales records for the first quarter. Renault Samsung Motors (South Korean Joint Venture) sales increased by 56.3% and those of Lada by 7%.

In Europe, the group’s share of the PC + LCV market increased 0.2 points to 10.1%. Sales grew 10% to 478,706 vehicles.

Renault’s own-brand continued to progress, with a 10.1% rise in registrations.

The market share for this brand reached 7.7%, up 0.1 points. Sales of ZOE electric car rose 57% and reinforced the group’s leadership with a 28% share of the electric vehicle market.

Source:Financial Tribune

As many as 11,232 small- and medium-sized enterprises have received an aggregate of 79 trillion rials ($1.97 billion) in loans during the 10 months to January 19, 2017, according to the chairman of Iran Small Industries and Industrial Parks Organization.

Ali Yazdani, who is also a deputy minister of industries, mining and trade, added that the loans are part of a stimulus plan prepared by the government's economic team, based on which loans worth 160 trillion rials ($4 billion) are to be given to struggling SMEs in the industrial and agricultural sectors, IRNA reported.

By definition, enterprises run by 50 workers or less, and 100 workers or less are considered small- and medium-sized respectively, according to Iran’s Small Industries and Industrial Parks Organization.

In July 2016, it was announced that 96% of the 88,000 licensed Iranian businesses are considered small- and medium-sized.

According to another deputy minister of industries, mining and trade, Reza Rahmani, some 20,000 industrial units have emerged from recession since the beginning of the current Iranian year (March 20, 2016).

According to Farshad Moqimi, the deputy head of Iran’s Small Industries and Industrial Parks Organization, Iranian SMEs have attracted $1.84 billion in foreign direct investment since President Hassan Rouhani took office in August 2013, of which $653 million have been invested after the implementation of Iran’s nuclear deal.

“Since Rouhani became president, foreign investors have signed 47 contracts to establish small- and medium-sized industrial enterprises and create 2,740 jobs,” he said.

“These contracts have been signed by Turkey, Azerbaijan, Ireland, Japan, Iraq, Afghanistan, Croatia, China, Germany, France, Turkmenistan and the UAE.”

Seven of the 47 contracts have been signed since the removal of sanctions.

Of all the agreements, Moqimi noted that 25 projects have become operational and the rest are either under construction or their machinery are being installed.

Back in May, Iran Chamber of Commerce, Industries, Mining and Agriculture hosted a delegation of World Bank experts who had come to assess the situation for the provision of loans to small- and medium-sized enterprises.

“We might be able to get them to provide us with at least $1.5 billion to $2 billion in loans, if we can convince them of Iranian SMEs’ potential and capabilities,” said Mohsen Jalalpour who was then the ICCIMA president.

In a move initiated by Iran Fara Bourse, the over-the-market exchange launched a platform for trading SME shares in December.

“The advent of SMEs in the capital market will help drive the economy toward greater transparency. It will also spur employment and growth by funding smaller businesses,” said CEO of Securities and Exchange Organization Shapour Mohammadi.

کتاب عملیات بانکی در عرصه بین الملل -سرفصل ها،ضمائم ،توصیه صاحب‏نظران ارزی و مدیران ارشد بانکی

Investment Consulting &Project Finance


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