Implications of the US sanctions on the Iranian steel industry
On 6th July 2018, the US re-imposed the sanctions on Iran that have been suspended under the Joint Comprehensive Plan of Action (JCPOA) in 2015 known as Iran Nuclear Deal. The other countries that were part of the agreement are remaining committed to the deal. European countries especially the UK, Germany and France are showing strong opposition to the US policy while Russia and China also rejected the US stance. On the other side, Mr Trump issued a strong warning that anyone who trades with Iran will not be able to do business with the US. The current sanctions cover the following areas.
- Business in graphite, metals such as aluminium and steel, coal, and software for integrating industrial processes
- Significant business in the Iranian automotive sector, particularly manufacturing and assembly, including light and heavy vehicles and parts
- Purchase or acquisition of US dollar banknotes by the Government of Iran, as well as trade in gold or precious metals
- Significant trading of Iranian Rials or the maintenance of significant funds or accounts outside the territory of Iran denominated in Iranian Rials
- Dealing with Iranian sovereign debt
In the second round of sanction which will become effective on 5th November 2018 where the US will impose more severe sanctions on Iran covering the following:
- Shipping and shipbuilding
- Iran petroleum and petrochemicals
- Refined petroleum products, irrespective of origin
- Financial transactions
- Underwriting, insurance, and reinsurance
- Companies continue doing business with Iran would face heavy penalties.
Commodity inside views:
Iran is the 13th largest steel producer with 21.2 million tonnes of crude steel production in 2017 out of which more than 35% exported. Its export share is continued to rise and registered over 10% year on year growth in 2018. Due to its lower production cost, and growing demand in domestic and export markets, the country planned to increase its production to 55 million tonnes by 2025. Southeast Asia, the Middle East and EU are the key regional markets for Iranian steel.
It is expected that the US sanction would have less impact of the EU trade as it is mainly an importer of Iranian finished steel products and these products are already under antidumping duties in the EU. However, the EU has started importing notable tonnages of semi-finished steel recently. For instance, a major Italian steel producer Marcegaglia also signed a long-term offtake agreement with an Iranian slab supplier Mobarakeh Steel.
On the other hand, Southeast Asia and the Middle East steel industry could hurt more as Iran has recently become a major exporter of semi-finished steel products like slabs and billets to these markets.
Some EU countries have become important business partners since the sanctions lifted in early 2016. Steel producers and plants makers like Voestalpine, Danieli, SMS, Fives, Sarralle and Outotec also started doing business with Iran, which is now risked by the sanctions. Some under construction steel projects are going to be hit by financial difficulties. However, a few investment banks which have no business connections with the US would still be able to provide services to Iran.
It is expected that the ongoing investments and development projects from the EU companies will continue in the short term as the EU activated “blocking statute” on 7th August 2018 to mitigate the sanctions effect. The blocking regulation would allow the EU companies to continue business with Iran and recover any damages arising from the US sanctions.
We expect that in case the EU becomes unable to continue its development projects in Iran, then it will most probably move to Chinese and Russian technology to fulfil its steel industry needs.
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