According to a report by Business Monitor International, with plentiful iron ore and coal resources to exploit, Iran has all the ingredients to become a major steel producer. However, several economic and political hurdles have to be overcome before it becomes a reality.
Iran aims to double its steel capacity to 40.5 million tonnes per annum by 2012. The global economic crisis has cast its impact in 2008 with output falling by 0.9% to 9.96 million tonnes with most of the fall in output occurring in Q3 rather than Q4, in contrast to the global trend.
Combined output in the first 2 months of 2009 actually rose 20% YoY to 1.9 million tonnes amid strong demand from construction, particularly in relation to ongoing projects in the oil, gas and petrochemicals industries. This is not a situation that BMI believes can be sustained in an increasingly difficult economic and political environment. Through its dependence on oil export revenue, Iran's economic health is intrinsically tied to the state of the global economy.
As a result of the credit crunch and declining oil revenue, steel consumers particularly in the construction and automotive industries will run out of cash and financial support as well as being faced with low demand for their products. BMI forecasts an 8.7% drop in steel production in 2009. Although this may seem bearish, it is not a worst case scenario. If Iran enters into recession in 2009 or 2010 and oil prices are lower than we expect, output in metals could plunge further.
BMI also envisages a late recovery in the industry, with signs of growth unlikely until H210. However, when the recovery does occur in 2011, growth will be in double digits and BMI believes that Iranian crude steel production will comfortably exceed 20 million tonnes in 2013. In an effort to boost domestic production, almost USD 5 billion worth of steel projects were underway in Iran by Q109, around half the total in the Gulf.