In May 2018, the U.S. government had announced the imposition of the first round of economic sanctions on Iran with effect from 7 Aug’18 after U.S. opted out of Iran’s nuclear deal that was signed in 2015. These sanctions have restricted any country or company across the globe to have trade relations with Iran and if this happened then the respective country or company is subject to secondary sanctions (won’t be allowed to do business with U.S.).
These trade sanctions have resulted in the significant depreciation of Iranian currency Rial (IRR) against USD with its value currently reaching all-time low at 128,500/MT in the open market. In Aug’18 the IRR was being traded at USD 92,000/MT in the open market.
Amid this currency depreciation, the imports in Iran have become too costlier and one of the key sectors that are suffering severely at present is steel. This is because the majority of steel production in Iran takes place via EAF (Electric arc furnace) route and Iran’s requirement of Graphite Electrodes (GE), which is a key raw material for electric furnaces is majorly met via imports.
Iran majorly imports GE from two countries China and India. In the last Persian year of 2017-18 (21 Mar’17 to 20 Mar’18) the country imported about 100,939 tonnes of graphite electrodes out of which 67,227 tonnes (67%) of GE from China and 11,878 tonnes (12%) from India.
The current scenario in Iran’s graphite electrodes market
When the sanctions came into effect, the speculations in the market were rife that India and China would continue their trade with Iran as Iran is the top crude oil supplier to both the countries and that the trade transactions would take place in the local currencies of Chinese Yuan and Indian Rupee.
However, as per the SteelMint sources, the Indian graphite electrodes producers, HEG Ltd and Graphite India have stopped their exports to Iran till some clarity emerges while the already signed contractual GE export orders to Iran from these two companies are heard at around USD 22,000-26,000/MT. Moreover, Indian GE suppliers are worried that if they continue their supplies to Iran, U.S. may restrict its export of Needle coke to them. Needle coke is primary raw material for the manufacturing of graphite electrodes.
During the last stringent sanctions regime against Iran (2012-2015), India made payments to Iran for crude oil in rupee through UCO Bank. Iran, in return, used the money to pay for other imports from India. However, this time Iranian banks have stopped allocating Indian currency which has impacted the country’s imports quite adversely.
India is trying hard to get the waiver from U.S. sanctions in order to secure its crude oil imports from Iran and if this happens then trade in Indian currency will be back on track as Iranian banks will once again start allocating INR.
In case of China also the procurement of graphite electrodes has become quite difficult in the absence of legal payment system.
“Last year, the EAF manufacturers in Iran have already procured their graphite electrodes requirements for 9-12 months amid the speculations of U.S. sanctions that had gained momentum last year itself. However, currently, the GE supplies to Iran and not sufficient. Some Chinese suppliers are trying to supply graphite electrodes to Iran using Yuan through their agents in Iran whereas Indian GE is completely absent in the Iranian market”, quoted Mr. Keyvan Jafari Tehrani, owner of JTC Iran – a renowned Trader and International Steel Consultant.
The likely impact of limited graphite electrodes supply in Iran would be seen on its billet supplies as Iran is one of the key billet exporting countries in the world. The country exported about 5.60 MnT of billet last year in 2017 whereas about 4.64 MnT of billet was exported in the first seven months of 2018 (Jan to Jul) with highest supplies being made to Thailand followed by UAE and Egypt.
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