Prudent Approach Needed
Since the conclusion of a nuclear deal between Iran and the US, Korean steelmakers are looking for new business opportunities in Iran, a claim was made that a prudent approach is needed in consideration of risk factors in the Iranian steel industry.
“Export and investment strategies should be made based on a deep understanding of Iran’s national characteristics and business environment,” the Posco Research Institute claimed in its report titled “The Emergence of Risk Factors in the Iranian Steel Industry after the Lift of the US Economic Ban and Its Implications" on October 5.
In 2004, the Iranian government announced its goal of ramping up its steel production capacity to 55 million tons by 2025. They have been actively courting foreign investors to fulfill the goal since they hammered out the nuclear deal with the US.
55 million tons placed seventh in the world steel production standings as of 2015. The sixth ranker was Korea with 69.67 million tons while Iran claimed 14th place with 16.14 million tons.
Therefore, the Korea Iron & Steel Association signed an MOU with the Iran Steel Pipe Association in March this year. POSCO also signed an MOU with the IMIDRO and Mobarakeh Steel Company of Iran in May. SeAH Special Steel is said to have decide to invest in an iron wire factory in consideration of the Iranian automobile industry’s growth potential. The company expanded its exports to Iran to 750,000 tons in 2015 from 560,000 tons in 2014.
The report suggested opportunities in the Iranian steel industry such as an increase in domestic demand compared to neighboring nations, elements for low-cost production such as Iran’s possession of materials and fuels and the strong protection of its domestic market due to its non-membership in the WTO.
By contrast, the report pointed its finger at a scarcity of water, gas and electric power required for a 55-million-ton production capacity as a risk in the Iranian steel market. The report mentioned an increase in logistics cost caused by a lack of logistics infrastructure as a risk, as well. “Investment was suspended during the economic sanction period, making Iran’s railroad network too old and preventing the country from building a deep-sea port. So, cargoes need to be moved to a smaller ship at a Dubai, UAE port. This may raise sea transportation cost.” the report analyzed.