COMMENT: Iran's influence on global slab market grows as exports surge

Growing export volumes of steel slab from Iran are enhancing the country’s standing in the global market for the semi-finished product and are already having an influence on slab pricing in other markets.

Therefore, Metal Bulletin is proposing to launch an assessed price for Iranian export steel slab on January 10.

In the first half of the current Iranian year (March 21-Sept. 22, 2017), slab export volumes almost tripled year-on-year to 1.6 million tonnes, according to the Iranian Steel Producer’s Association.

This pushed Iran into the world’s top three slab exporters following CIS and Brazil.

Over the 12 months of the current Iranian year (up to March 21, 2018) Iran is targeting exports of 5.30 million tonnes of semi-finished products, with around 35% falling to slabs, according to the market participants. 

Capacity growth
One of the reasons for the increase in slab export volumes was the massive capacity expansion at the country’s largest steelmaker, Mobarakeh Steel, and its subsidiaries.

Mobarakeh Steel’s total slab production capacity is currently 10.30 million tonnes and is expected to rise to almost 12 million tonnes in early 2020.

In November 2016, the company added a 1.80 million-tpy continuous casting machine at its main plant located in Esfahan province, thereby increasing its annual slab production capacity to 7.20 million tonnes. 

In April 2017, the producer also doubled its slab capacity at its subsidiary Saba Steel, to 1.60 million tonnes.

Another of Mobarakeh Steel’s subsidiaries, Hormozgan Steel Co (Hosco) currently has the capacity to produce 1.50 million tpy of slab, and is expected to double this by the beginning of 2020.

Considering that the local market for slabs in Iran is relatively small, the balance of slabs is anticipated to be funneled to the export market.

Shrinking HRC exports
Another reason for higher slab exports from Iran this year is the drop in HRC export volumes, which has been driven by anti-dumping cases in Europe and in Thailand, as well stronger domestic demand.

The restrictions on HRC exports to the EU gave Iran a significant spur to ramp up its slab export volumes to Europe.

"The market for semi-finished steel is not protected even in Europe, and HRC exports may be replaced by slab and billet," one source said.

The EC concluded its investigation into HRC imports in October this year by imposing fixed charges of €17.60-96.50 ($20.66-113.29) per tonne as a trade defence measure against HRC originating from four countries. Iran received a fixed charge of €57.50 ($68) per tonne.

Meanwhile, Thailand set a definitive duty of 7.25% for Mobarakeh Steel products in May, while the duty for other Iranian producers stands at 38.27%.

The cases led to an 80% year-on-year fall in total Iranian HRC exports, which dropped to 156,000 tonnes in the first half of the current Iranian year, according to Iranian Mines & Mining Industries Development & Renovation Organization (Imidro).

The consumption of HRC in Iran's domestic market rose by 13% year-on-year to 4.05 million tonnes, from March 21  to September 22, 2017 .

The higher flat steel usage primarily refers to the rise in auto production, alongside steel pipe and profile manufacturing.

Pros and cons
The growth of Iranian slab export volumes is supported by one undeniable advantage: competitive prices, because Iranian slab exports are usually at least $10-15 lower than those from the CIS region and Brazil.

In late October, Iranian slab was heard traded to Taiwan at $465-470 per tonne fob, which would be equivalent to $490-495 per tonne cfr including the cost of finance and freight.

In comparison, the workable level for CIS-origin slab to Taiwan was $500-505 per tonne cfr at the same time, according to market participants, with Metal Bulletin's price assessment at  $485-490 per tonne fob Black Sea.

Metal Bulletin’s price assessment for Brazilian slab exports in late October was $470-485 per tonne fob.

However, not all 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, sanctions remain in the United States, which means companies or individuals there cannot engage in US-dollar transactions with Iranian counterparts as such deals must pass through the US banking system.

But despite the US sanctions, deals are still being concluded.

Trading firms - especially a few companies based in Dubai as well as some 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, although some Iranian mills may ask for as much as a 30% down payment before concluding an export sale.

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.

Other currencies, such as the UK's pound sterling, Japanese yen or even the UAE’s dirham, can also be accepted depending on the trading company involved.

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 such transactions is that Iran is never mentioned in the sales contract or the B/L.

The cargo is loaded in a vessel in Iran, but the ship first goes to a nearby country, such as the UAE, before it heading off. The B/L will have either this country or the ‘Arabian Gulf’ or ‘Persian Gulf’ stated as the origin of the cargo.

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 period for Metal Bulletin's proposal to launch an fob price assessment for Iranian steel slab exports ends on December 17.

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