Fresh US sanctions against Iranian steel exports are likely to have little impact because pricing remains attractive to buyers in Asia, Iran-based sources told S&P Global Platts.

“The recent US sanctions are not expected to have a big impact on Iranian steel producers as long as steel products continue to have attractive prices,” a trader said.

“Even during the previous sanctions Asian buyers were not put off from purchasing from Iran so I don’t think these new sanctions will have an effect, in particular now the riyal has depreciated.”

The US imposed new sanctions on Iran’s steel and metals exports last month. The move comes after US President Donald Trump threatened new sanctions in response to the Iranian airstrikes earlier last month targeting US military bases in Iraq, said S&P Global Platts, a leading provider of information and analytics for the energy and commodities markets.

The sanctions on 17 entities in the steel industry and some other shipping and trading entities, including some based in the Seychelles, are designed to cut off billions of dollars to Iran.

Cold rolled coils in the storage yard (Photo courtesy: worldsteel)

A statement from the US’ Office of Foreign Assets Control (OFAC) lists some of the entities now to be sanctioned as Iran’s largest steelmaker Mobarakeh Steel Company, Al Mahdi Aluminum Company, Arfa Iron & Steel Company, Arfa Steel, Chadormalu Mining & Industrial Co, Esfahan Steel Company (ESCO), Golgohar Mining and Industrial Company, Hormozgan Steel Company (Hosco), Iran Alloy Steel Company (IASCO), Iran Aluminium Company, Iranian Ghadir Iron & Steel Co (IGISCO), Iran’s Aluminum Company (IRALCO), Khalagh Tadbir Pars Co, Khorasan Steel Company, Khouzestan Oxin Steel Company, Khouzestan Steel Company, Kish South Kaveh Steel Company (SKS), National Iranian Copper Industries Company (NICICO), Pamchel Asia Steel Group Company Limited (linked to Khalagh Tadbir Pars Co), Pamchel Trading Beijing Co Ltd, Power Anchor Limited, Reputable Trading Source LLC Company (RTS LLC) and Saba Steel Company.

Aided by a devalued rial, Iranian’s steel mills and iron ore producers have continued to increase their exports of a variety of products in recent months despite secondary sanctions and the build-up of tensions, leading Tehran-based observers to say that Trump has helped to make Iranian steel more competitive.

“As a result of devaluation of Iranian currency – mainly caused by the US secondary sanctions -- the Iranian mills are very competitive at the moment and almost all of the exporting outputs were sold for next two or three months,” an Iranian observer in Tehran told S&P Global Platts.

The riyal has lost 4.3 per cent in value since Iranian General Qassem Soleimani Soleimani was killed in a drone strike in Baghdad on January 3.

While some costs have increased amid the current tensions, including on freight from the Persian Gulf and insurance, export prices are still attractive for importers and more than in the domestic market, the observer said.

However, some traders concede the new sanctions may affect sentiment.

“The sanctions of course are not without effect; some customers may be reluctant to deal with Iran,” said Reyhaneh Sarlek, an Iran-based steel market specialist. She noted that these sanctions are likely to present more obstacles to trade with Iran than the previous round of secondary sanctions. Insurance and shipping costs may increase as a result, various traders said.

Secondary sanctions were introduced last year on some metals and mine products.

“Domestic mills can be very competitive although some costs have increased such as freight,” the first trader said. “Locally, inflation, which is already high, can be a problem for domestic steel demand.”

Iran’s steel exports have increased during the period of secondary sanctions against the country, according to data from Iranian mines and metals holding group Imidro. Much Iranian steel is in any case traded offshore, via traders in locations including Dubai. One international trader told S&P Global Platts he had heard of an Iranian steel trade involving “switching off the BLs and other documents.”

Market sources said China can be expected to continue to import some Iranian steel, mainly via Chinese companies active in the Middle East. Chinese buyers have been taking an increasing tonnage of Iranian billets, slab and pig iron since June when China banned scrap metal imports and domestic prices soared as a result. Chinese customs data shows it imported at least 400,000 mt of Iranian billets and slabs over January-November.

Amid tensions between the US and Iran before the latest sanctions were announced January 10, the Indonesian government had already asked local buyers to avoid Iranian billet. One major Indonesian importer alone had been buying around 200,000 mt per year of Iranian billet. Other recent buyers of Iranian steel include Thailand, Oman and Iraq.

Turkey also buys from Iran, although as one of the largest producers of rebars, it gets most of its supply domestically. It imported 141,300 mt of rebar from Iran in the first 11 months of the year, up sharply from 30,700 mt in the same period of 2018, according to the most recent data from the Turkish Statistical Institute (TUIK), as cheaper Iranian rebar offers to Turkey spurred buying interest, especially in the east of the country. In the whole of 2018, Turkey imported just 50,320 mt of rebar from Iran.

Iran’s main steel producers, excluding small private sector mills, exported 5.2 million mt of finished and semi-finished steel in the first nine months of the current Iranian year (to December 21), up 19 per cent year on year. However, in the past month alone exports totaled 485,000 mt, a 91 per cent increase year on year, according to data from Imidro.

Iran’s steel production capacity is expected to reach 43.6 million mt per year by the end of the next Iranian year (March 20, 2021), while Imidro estimates production in the current financial year hitting 31.1 million mt per year as the country continues with an ambitious steel capacity expansion programme. Iran’s current steel production capacity is 35 million mt per year.

Mobarakeh Steel Company (MSC) exported 1.1 million mt in the nine-month period, 47 per cent more than the same period a year ago, and in the last month (to December 21), its exports totaled 99,000 mt, up more than sevenfold. Some 593,000 mt of slabs, a semi-finished steel product, were exported during the period by an MSC-affiliated company, Hormozgan Steel Company (Hosco) in the nine-month period, up 19 per cent year on year.

With some 1.37 million mt of slab and billet, another semi-finished product exported during this period, Khouzestan Steel Company (KSC), Iran’s second-largest producer, reported a 17 per cent year-on-year decrease in exports. In the last month KSC exported 108,000 mt of semi-finished products, down 22 per cent year on year, with the decline attributed to greater domestic sales.

South Kaveh Steel (SKS) exported 608,000 mt of billet, 23 per cent more than the same period last year and in the last month its exports totaled 56,000 mt, a 33 per cent decrease.