In 2018, the United States had re-imposed sanctions on Iran that it lifted just two years ago. The first round of sanctions came into effect in the month of August 2018. It included restrictions on Iran’s purchase of U.S. currency, Iran’s trade in gold and other precious metals, and the sale to Iran of auto parts, commercial passenger aircraft, and related parts and services. The second set of sanctions, which comes back into force in November 2018, restricted sales of oil and petrochemical products from Iran.
This move by U.S. contributed to a run on the Rial and triple-digit inflation as Iranians scrambled for the safety of U.S. dollars and gold. While the entire economy reeled under uncertainty about the consequences of sanctions once again, Iran’s steel industry which is a strategic industry for Iran whose developing economy heavily relies on construction feared the most about the availability of raw material. This is because the majority of steel production in Iran takes place via EAF (Electric arc furnace) route and country’s requirement of Graphite Electrodes (GE), a key raw material for electric furnaces, is majorly met via imports.
The two countries that supplied graphite electrodes to Iran are China and India and the average percentage of Iran’s GE imports from China stood at about 70% and that from India at around 10%. But with sanctions in place, both the countries have become skeptical of dealing with Iran and now a major question is that from where Iran is procuring its GE requirement to have undisrupted production of steel.
Does Iran had enough graphite electrode stocks?
Iran has a steel production capacity of 34 MnT per year and plans to scale up its production upto 55 MnT by 2025. According to our sources, Iran was prepared for the sanctions and the steelmaker and traders prepared themselves with GE stocks for six months or so which helped them to have undisrupted steel production. This can be second by growth in Iran’s crude steel production in 2018.
Iranian steel production rose to a record 20.6 million tonnes in the first 10 months of the Persian year 2018-19, a y-o-y growth of 10%, making the country the world’s 11th biggest producer, data by the World Steel Association showed last month. This figure can rise to 25 MnT tonnes by the end of the current Persian year as per the industry estimates.
Amid currency depreciation of Rial due to sanctions, exports became more lucrative for the Iranian steel producers. According to CEO of Tehran-based AASIM Consulting Group, Iran’s steel exports this year which ends 21 Ma’19 are set to equal last year’s record of over 9 MnT. The country has so far exported 6 MnT of steel in this Iranian year, similar to the previous year. At least half is semi-finished products such as billet and slab. Iranian steelmakers have largely maintained their links with their partners, mostly in the Middle East, Russia, China, and the European Union, despite the sanctions.
Is Iran importing graphite electrodes?
As we analyse Iran’s GE imports, the same has registered an increase of 24% y-o-y basis from 87,840 tonnes in 2017 to 109,331 tonnes in 2018. But to our surprise out of the total imports, the highest quantity has been booked from China at 79,671 tonnes followed by Germany at 11,089 tonnes and then India at 10,647 tonnes. In 2017, the GE imports from China were at 63,852 tonnes, from India were at 11,443 tonnes, but the same was quite lower at 5,059 tonnes from Germany.
Even if we look at Iran’s GE imports post sanctions months in August and November, the highest quantity has come from China whereas the same has decreased significantly from India. According to a few market participants, Chinese suppliers are still continuing their GE supplies to Iran on FoB terms and in order to circumvent the restriction due to sanctions, the exports are being re-routed via the third country.
On the other hand, in case of Indian GE manufacturers, Iran market contributed to about 7-8% of their export market. However, post-sanctions these producers are completely avoiding any trade with Iran. This is because Indian electrodes producers needle coke (which is a key raw material for graphite electrodes) mainly from U.S. and having any trade with Iran will result in the imposition of secondary sanctions on Indian companies which will disrupt their entire production.
Iran’s IMIDRO Seeks Remaining Funding for its Graphite Electrodes Project
Recently Iran’s IMIDRO (Iranian Mines and Mining Industries Development and Renovation Organisation) has sought remaining funds required by Mar’19 for the completion of the first graphite electrodes plant in the country.
In 2018, IMIDRO had formed a joint venture with Mobarakeh Steel, Khorasan Steel, and Chadormalu to invest in and help in the completion of the plant. The 350 million Euros (USD 400 million) Ardakan-based project has been on cards since long and is yet to be completed. According to IMIDRO, about 170 million Euros of funding is still required.
The plant is set to have 30,000 tonnes capacity with a provision to expand capacity up to 45,000 tonnes. IMIDRO is seeking early completion of the GE project in order to address the country’s risk and the problem of GE procurement.
What the future holds?
The completion of IMIDRO’s GE plant will take time and also the electrode requirement of country is higher than the capacity of the planned GE unit. Thus, in order to meet its steel plants requirements, Iran has to sources graphite electrodes from other countries.
While it is unlikely that U.S. may end its sanctions on Iran anytime soon, the country will have two options, either to stop its ambitious steel production plans or to resort to illegal means to procure electrodes via the third country.
Apart from this, European countries, France, Germany, and Britain have set up a financial mechanism ‘INSTEX’ designed to avoid U.S. sanctions against Iran. INSTEX, which stands for “instrument for support of trade exchanges”, is registered in the first week of Feb’19 in Paris with an initial capital of 3,000 Euros as a proposed payment channel from Europe to Iran, and vice versa.
INSTEX will support legitimate European trade with Iran, focusing initially on the sectors most essential to the Iranian population such as pharmaceuticals, medical devices, and agri-food goods.
With this mechanism in place, market participants are hopeful that Iran may be able to secure its GE requirements but industry sources have confirmed that this mechanism will take time will not be fully operational until later this year.
Leave a Reply