Plan for new Iran export duties causes confusion in steel markets

Iran’s ministry of industries, mines and trade imposed new export tariffs on various products including steelmaking raw materials and steel products early this week, Fastmarkets learnt on Tuesday April 12.

The duties will be applied retroactively from March 21, which was the beginning of the Persian New Year, and will last until June 21, 2022.

The introduction of tariffs was considered by Iranian authorities in March as a way to ensure the availability of materials to local buyers amid the rises in global prices resulting from the war in Ukraine.

But some market participants saw it as an attempt by the government to generate new income to cover a budget deficit.

Iron ore (58-62% Fe), iron ore pellets, direct reduction iron (DRI), billet, slab, rebar, wire rod, beams and sections, as well as various flat steel products – such as hot-rolled, cold-rolled and galvanized coil – were among the products subject to duties.

Confusion over calculations

But there was a lot of confusion in the market regarding the method by which the duties would be calculated.

“The instructions published by the government to customs [aithorities] are very confusing,” one source said.

According to the first version of instructions reported by market sources, the duties would be based on the percentage difference between index prices and current sales prices.

Index prices are based on average market prices in December 2021. And the duties should be applied to current $ per tonne fob values.

According to information received by Fastmarkets from the market, in that scenario, export duties could be as high as 11% for DRI, 17% for billet, 22% for slab, 8% for rebar, wire rod and beams, and 5% for sections and flat steel products.

But the second version of the duties reported by market participants said that the duty would be charged only on the excess amount above the index price.

“The circular letter indicated the average export billet price in December at $550 per tonne fob. One mill tender was closed last week at $720 per tonne fob, so it would have to pay [the specified] percentage on $170 per tonne as export tax,” one trader said.

“Wait for us to understand [this],” a local source told Fastmarkets, adding that the ministry was expected to publish clarifications.

Market criticism

One way or another, the government’s move drew much criticism from steel market participants, who said that the industry in Iran was facing overcapacity and that any export restrictions would have a negative effect on it.

“The markets started to soften recently, so it is not a great time for this uncertainty,” one source said.

“International markets will not pay any higher, so basically all bids will come including an export tax discount,” another source added.

According to the Iranian Steel Producers’ Association (ISPA), the country’s output of semi-finished steel products totaled at 25.34 million tonnes during the first 11 months of the previous Iranian year (March 20, 2021, to February 19, 2022), which was down by 9% year-on-year.

Output of finished steel decreased by 5% year-on-year over the same period, to 18.03 million tonnes.

At the same time, the country exported 6.76 million tonnes of semi-finished steel materials, of which 4.62 million tonnes was billet (up by 10% year-on-year) and 2.14 million tonnes was slab (up by 47% year-on-year).

Overseas finished steel product sales increased by 14% year-on-year to 3 million tonnes. This was attributed mainly to higher sales of long steel products – 2.48 million tonnes, up by 24% year-on-year.

Meanwhile, the ISPA said that DRI sales surged by 20% year-on-year to 980,000 tonnes.