The Iranian private sector, which has been involved in the country's steel industry at the rolling stage for a number of years, is now launching new steel plant investments, focusing in particular on semi finished production.
Mr. Hasan Mosayeb Zadeh, managing director (MD) of rebar-producing rolling mill Steel Alborz, in his additional position as MD of Gambron Steel Co. - a steel melting plant currently under construction in Bandar Abbas - granted the following interview to the Iranian Mines and Mining Industries Development and Renovation Organization (IMIDRO), in which he discusses the development of the private sector within the Iranian steel industry:
IMIDRO: How did the Iranian private sector view the situation of the steel industry in Iran in 1385 (21.03.2006 - 20.03.2007)? How was the relationship between the government and the private sector?
HMZ: Construction activity increased in 1385 and therefore we experienced a good market for steel. The Iranian authorities cooperated with the private sector as much as possible.
IMIDRO: Is the private sector interested in supplying its steel products to the TME (Tehran Metal Exchange)?
HMZ: Yes, the private sector would like to supply its products to the TME but on the same conditions as for state-owned mills such as Esfahan Steel Co., which has adequate raw material (iron ore) supplies and also has a large production volume. The steel industry's private sector cannot compete with the state-owned sector as it imports the semi finished raw materials it needs (billet, slab, bloom, ingot) at global prices and so bears heavy production costs. Currently, considering production and other miscellaneous costs, cost prices and sales prices are more or less the same. This means there isn't great profit to be made in this sector at present.
IMIDRO: When will private sector products be able to enter the TME?
HMZ: The first issue is that those products should reach the relevant standards. Therefore, the TME must make sure of the quality of goods and their conformity with the prescribed standards.
IMIDRO: Is Steel Alborz ready to enter the TME?
HMZ: Yes, we are ready.
IMIDRO: Which products will you be supplying to the TME?
HMZ: We already produce rebar and we are ready to sell this product on the TME. However, the new plant (Gambron Steel Co.) will produce different products, and we can make up our mind regarding the sale of Gambron Steel products on the TME whenever production comes on stream.
IMIDRO: What influence do global steel price fluctuations have on private sector production in Iran?
HMZ: The private sector imports all of its current semi finished requirements (billet, slab, bloom, ingot) from foreign countries and so global price fluctuations certainly influence the price of steel products produced by the Iranian private sector. Meanwhile, domestic decisions or policies can affect the export prices of foreign suppliers since countries which export steel to Iran adapt their export prices to our decisions and policies.
IMIDRO: How do you assess the steel market prospects for 1386?
HMZ: We expect a positive market for steel and think that a lot of products will be sold in 1386 (21.03.2007 - 20.03.2008) due to the boom we expect in construction activity in 1386, as was the case in 1385.
IMIDRO: What expectations does the private sector have of the Iranian government?
HMZ: Unfortunately we attribute all of our problems to the government and think that everything should be resolved or arranged for the producers by the government. So far the government and other authorities have implemented the private sector's requirements as much as possible - apart from the issue of iron ore supplies for the private sector. We hope that this major request of the private sector will be heeded in the year which has just started (1386).
IMIDRO: Following last year's (Iranian year 1385) announcement regarding article no.44 of the constitution, can the private sector now buy state-owned steel plants in Iran?
HMZ: Some shares in state-owned companies, such as Mobarakeh Steel, were sold on the Tehran Stock Market before the end of last year (1385). However, this was only a handing over of shares while the important thing is the handing over of management in such companies. The Iranian authorities should entrust management to the private sector when shares are sold so that the private sector can make the decisions for the companies in question. In brief, the sale of shares to the private sector, even high percentages of shares, cannot be interpreted as being in line with the implementation of article no.44 of the constitution as long as company management remains in the hands of the government.
IMIDRO: Has the private sector taken any steps towards semi finished production before now? Or has the private sector had the ability to take such steps?
HMZ: The private sector has had such ability from the beginning. However, usually the private sector worldwide has initially entered steel production at the rolling stage. The Turkish private sector entered steel production in the same way, first establishing rolling mills before proceeding to the other stages. Turkey now produces about 27 million metric tons of steel with a 90 percent contribution from the private sector. The Iranian private sector has made a number of attempts up to now as regards semi finished production in the country. Our steel plant, Gambron Steel, which is located in Bandar Abbas will be put into operation in the near future.
IMIDRO: What is the current state of the project and when will it be put into operation?
HMZ: The production unit for I-beams, U-beams and angels is 50 percent completed and it will be put into production in the Iranian year 1386. The melting unit which will use scrap will enter production in 1387 (21.03.2008 - 20.03.2009).
IMIDRO: What is the capacity of Gambron Steel?
HMZ: Gambron Steel's melting unit has an annual capacity of two million metric tons.
IMIDRO: What developments are expected in Gambron Steel's production following the establishment of the consortium behind the company?
HMZ: Iron ore for the production of 1.5 million metric tons of crude steel should be supplied by the government according to the instructions of the Industry & Mines Minister, which were issued after the decision to establish the consortium. The registration process is already underway for the consortium and it will plan its semi finished production after commencing formal activities.
IMIDRO: Can the private sector meet market demand in Iran?
HMZ: The private sector, along with the production of the state-owned sector, can meet market demand in Iran if sufficient quantities of iron ore are supplied to the private sector so that imports are no longer needed.
IMIDRO: To what extent have building prices been affected by steel prices?
HMZ: Generally, 50 kg of steel is needed per square meter in buildings. Considering the existing prices of steel, this does not constitute a significant part of building prices. The recent strong fluctuations in the building sector are related to land price increases and the rise in demand.
IMIDRO: Is there any final comment you would like to add?
HMZ: I would just like to ask the Iranian authorities to ensure supplies of iron ore for the Gambron Steel plant.