In the first half of the current Iranian year (March 21-September 22, 2017), billet shipments from the country rose 25% year on year to 1.60 million tonnes, according to the Iranian Steel Producers Association, accounting for half of the country’s semi-finished steel shipments.
But Iran plans to move beyond this and export 5.30 million tonnes of semi-finished products over the 12 months to the end of the Iranian year on March 21, 2018, which would represent a 42% rise compared with the previous Iranian year’s 3.74 million tonnes.
Billet is expected to account for around 60-70% of the semi-finished exports target.
To effectively capture this shift in market dynamics Metal Bulletin is proposing to launch a weekly assessment for the Iranian billet export market starting from January 10, 2018.
In early November, Iranian billet was offered to foreign customers at $460-465 per tonne fob.
A 20,000-tonne cargo was reported sold at that time to Thailand, through a trader, at around $480 per tonne cfr. This was equivalent to $450-455 per tonne fob, considering the costs of finance and freight of $25-30 per tonne.
At the same time, Russia-origin material shipped from that country’s Far East ports was traded in Southeast Asia at prices a little below $500 per tonne cfr.
Meanwhile, in the Black Sea market, CIS-origin steel billet was available to customers at $470-475 per tonne fob.
Iranian billet price competitiveness in the seaborne market can be attributed to a number of factors, including its natural resources and reducing domestic demand for the product.
Iran has abundant iron ore and gas reserves, which leads it to favor direct reduction iron-based steelmaking.
And most Iranian steelmakers, including the country’s largest billet exporter Khouzestan Steel, use DRI, or sponge iron, as their primary raw material.
DRI is produced from the direct reduction of iron ore (in the form of lumps, pellets or fines) by reducing gas or elementary carbon produced from natural gas or coal, giving Iran - with its ample cheap natural resources - a unique cost advantage when it comes to steelmaking.
The other reason for comparatively low billet prices in Iran is reduced demand for long steel products in the domestic market as construction activity remains under-financed despite the partial removal of sanctions in early 2016.
In the first half of the current Iranian year, rebar utilization dropped 7% year-on-year, to 2.80 million tonnes, and beam use fell by 7% year-on-year, to 350,000 tonnes, according to the report by the Iranian Steel Producers Association.
At the same time, billet and bloom output rose by 15% year-on-year, to 5.56 million tonnes.
Khouzestan Steel alone shipped 710,000 tonnes of billet and bloom in the first half of the Iranian year.
Iranian billet is sold into the Middle East, North Africa, Asia, Europe and even several countries across the Americas.
In late October, news spread around the market of a possible significant rise in billet shipments from Iran to Asia.
“[Billet] export volumes from Iran [to Asia] may increase by as much as 25% in the mid-term, reaching 750,000 tonnes,” a trader based in Northeast Asia said.
“In future, Iran may export some material to China too because Iranian producers enjoy the advantage of access to cheap gas and iron ore compared with China,” another source said.
But banking issues are a complicating factor for the Iranian steel billet industry and not all of the trade sanctions against Iran have been lifted, despite the nuclear deal between Iran, the United Nations Security Council and the EU, which came into force in January 2016.
Crucially, domestic sanctions in the United States remain, which means companies or individuals cannot engage in US-dollar transactions with Iranian counterparts as such deals must pass through the US banking system.
But despite the US sanctions, trading firms - especially a few companies based in Dubai as well as in European countries such as Germany and Austria - buy directly from Iranian mills.
They usually make advanced payments of 10-20% of the total value of the contract, with some Iranian mills asking for a 30% downpayment.
Buyers can then either open a letter of credit (L/C) in euros or, preferably, make a telegraphic transfer (T/T) in euros to the trading company.
After the shipment is made, a bill of lading (B/L) is sent to the buyer, who then needs to pay the remaining value. The balance can be also paid upon receipt of the cargo, depending on the trading company.
The key element of these transactions is that Iran is never mentioned in the sales contract or the B/L, as Iranian material is first shipped to a nearby country and that location or the Persian Gulf or Arabian Gulf are stated as the place of origin.
Despite these hurdles more buyers are warming to the idea of purchasing Iranian material, and even when they do not, they are using Iranian material as leverage when negotiating prices.
The consultation on Metal Bulletin's proposal to launch a weekly price assessment for steel billet exports from Iran closes on December 17.
Iranian steel billet has been quietly gaining acceptance in the global market because of its attractive prices compared to material from other suppliers.