Steel comprehensive plan; a roadmap to balance

Being born in the furnaces of Esfahan Steel Company (ESCO), Iran’s steel industry incepted its operations since the beginning of 1970s and enjoyed the support provided by Bafgh iron ore mine in Yazd province, as well as Zirab coal mines located in Mazandaran province.In the following decades, new steel projects joined the production cycle in succession.
Although new and leading mines such as Chadormalu (Yazd) and Gol-e-Gohar (Kerman) joined the producers of iron ore in the 1990s, the imbalance in the production of steel or iron ore have caused some chaos in both local and overseas markets.

Given the explorations in the preceding decades as a result of operations undertaken between 1920s and 1970s, as well as a boost in steel production, Iran stood at 10th (based on the statistics published by Statista) and 14th rankings (reported by World Steel) in terms of iron ore reserves and steel producers in 2015.
The balance plan and the growth of steel production have been pursued determinedly since the half of the past decade and the private sector played a significant role in this regard. Likewise, a great number of foreign investors displayed a growing willingness to participate in mining and industry projects under JCPOA. The results are expected to be achieved in coming years.
To forecast the infrastructures for production and consumption of iron ore, iron ore concentrate, pellets, sponge iron and crude steel, the investors in this sector seek a development prospect on the basis of a coordinated, balanced and comprehensive plan.

Those involved in defining the Steel Comprehensive Plan took these issues into account.
The development of such a plan goes back to the early years of the present century, but due to the lack of consensus and non-professional decisions, the plan was not effectively implemented.
On the contrary, the development plans were put into action with a social approach in less developed regions of the country. However, this approach was widely criticized by experts as they were of the view that an economic logic should be applied to determine the site and scale of the production rather than other factors.
National Iranian Steel Company (a subsidiary of IMIDRO) and a private consultant (Technique Steel Company) developed an updated version of the Steel Comprehensive Plan. Subsequently, the preliminary results were submitted to the experts and managers active in the field.
In 2016, a revised version was released which will be discussed later. In the initial version of the plan, issues concerning development and balance in Iran’s steel industry such as energy supply (water, electricity and gas), infrastructures, technology, environment, raw material, and production chains were addressed and some strategies were employed.
It must also be considered that of industries such as aluminum, copper, lead, zinc, and gold, the share of steel in attracting investment is far higher ($30bn).As a result, by implementing steel plans, Iran will witness a hike in infrastructure capacity in sectors such as rail and road transport, specialized ports, etc.
According to Steel Comprehensive Plan, crude steel production capacity will reach 55mt in 2025. In the 2014 version of the plan, the rate of consumption was predicted to be 41.4mt but in the revised version released in 2016, the figure dropped to 34mt. The remaining 21mt of the production capacity in 2025 has also been targeted for export.
Iran’s steel consumption at the end of 2015 reached 20.1mt while it was expected to exceed 24mt. The drop in demand and recession caused a cut in the metal’s consumption.
According to the plan, the ultimate goal is to achieve a minimum per capita consumption of 421kg in outlook 2025.
By 2016, Iran’s crude steel production capacity and actual production hit 23.4mt and 16.3mt, respectively. Meantime, fully private companies hold 7.1mt of crude steel production capacity.
At the beginning of 2016, the total number of licenses issued for crude steel was 179mt while the consultants and officials active in this field hold that such requests should be reviewed and redefined based on the economic concepts, as well as competitive market. Only under such conditions, a balance can be achieved in the steel production chain.
Licensing requests for sponge iron, pellets and iron ore concentrate stood at 102mt, 147mt and 131.5mt, respectively.
Although the demands for production are categorized as options with «faint possibility» in the Steel Comprehensive Plan, the experts are of the view that steel development out of the comprehensive plan leads to an imbalance in steel value chain.
According to the current mineral reserves, the country does not have sufficient resources to feed a great number of concentrate units. Therefore, it seems that the new units need to supply raw material from import sources.

Path of balance
The comprehensive plan attempts to clearly draw up a picture of the steel chain’s future in Iran.
Given that creating a balance in the supply of the chain is of great importance in the comprehensive plan, the review of the plan indicated that 55mt steel capacity requires about 76mt iron ore concentrate per annum. However, the companies active in the production of concentrate and gradation of iron ore achieved the capacity of 43mt by 2016. Likewise, 80mt pellet is required for the plan.
In 2016, the production capacity of pellet was reported 23mt.Aiming to pursue the ultimate goal, a part of the demand is expected to be met through import. According to IMIDRO, the estimated investment for steel chain is $30bn in the comprehensive plan.

In addition, the average implementation period in iron ore processing and steelmaking is assumed about 3-4 years, respectively.
Reaching70% of 55mt crude steel capacity was one of the main issues emphasized in the plan, but there was no significant difference between the target and actual production in steel output sector. Besides, 10mt shortage of iron ore concentrate is seriously considered and is expected to be provided via import.

In Steel Comprehensive Plan, various methods such as econometrics, VAR and Arima are adopted. Consequently, the consumption is estimated based on economic growth rate, and automotive industry, food, etc. are acknowledged as effective industries in steel consumption.
For instance, the flat steel production and automobile production growth converged from 2003-2005 in the country. In 2010, due to the economic challenges, the trend of steel production and its demand in various industries suffered from a decline.
In addition, between 2002 and 2012, the consumption of steel had been converged with boom or recession in the housing sector. The growth of construction budget had a great impact on steel consumption as well. During the period between 2001 and 2014, the amount of consumption outweigh the local production. It was merely in 2015 that due to a recession, the rate of consumption was slightly lower than that of production.