“Steel sheet export bans will be a lesson learned the hard way”
Seven Diamonds Board Member in an Interview with FelezatOnline:

“Steel sheet export bans will be a lesson learned the hard way”

Pre-painted steel sheets are the final product in the steelmaking value chain; they create the highest added value and are only one step away from end consumers. The product is not very commonly produced or consumed in Iran; with the stagnation in industries such as construction, part of the domestic production is always surplus. Recently, however, exports of steel sheets and pre-painted sheets in particular have been banned on the pretext of controlling the market and stabilizing official domestic prices. As a result, companies are operating below 50% capacity. Seven Diamonds is among the companies that contribute to the domestic production of pre-painted sheets, with a wide range of products from cold-rolled coils to painted Galvalume sheets. But the company has had to cut output as exports have been stopped and the domestic demand for pre-painted sheets is not strong enough. FelezatOnline has interviewed Navid Izadpanah, board member at Seven Diamonds to further discuss the production and consumption of pre-painted galvanized sheets in this issue’s Insider Talk.

What are Seven Diamonds’ nameplate capacity and its actual output of pre-painted sheets?

Seven Diamonds can produce 12,000 tonnes of pre-painted sheets per month. Polyester and polyurethane finishes are used on our sheets; these are polymer paints and resin coatings. Actual output is about 5-6 thousand tonnes, with a 40-50% utilization.

How are pre-painted sheets produced?

Pre-painted sheets have a metal base, usually aluminum or steel. There are three types of steel sheets. Painted HRC sheets, which constitute most of the pre-painted sheets from China, have a shorter lifespan, about five to six years. But they are appropriate for a lot of applications with their own customers. Pre-painted galvanized sheets are another type, produced by Mobarakeh, Bahman Steel, Semnan Rolling and Tube Mills Group, and Soroush Rolling and Galvanized Steel.

Seven Diamonds produces pre-painted Galvalume sheets, the best type of painted metal sheets. These are used in home appliances (refrigerators bodies, for instance) and more recently in the automotive industry, replacing electrostatic paints owing to their higher resistance to corrosion and better paint quality compared to other types of sheets.

Galvalume sheets undergo a skin pass after production to be prepared for painting with a coarse surface. The sheets are then transferred to the painting line, where they are prepared by being cleaned, acid-washed, alkalized, and etched. These processes and chemical solutions prepare the sheets for actively attracting paint. The sheets are then pre-coated with a 5-7μm thick layer of paint on both sides before being baked. The next stage is the finishing coat and then the final baking. Finally, the sheets are rolled into a coil after being covered with a protective film.

How are your products categorized?

Pre-painted sheets generally fall into two major categories: pre-coated metal (PCM) sheets and vinyl-coated metal (VCM) sheets. VCM sheets receive a plastic coating before being hot-laminated. The plastic coating is usually PVC with a thickness of 30μm. Refrigerator doors with color designs such as steel, bronze, or metallic colors are generally made from VCM sheets. Mobarakeh is the only producer of VCM sheets in Iran.

Seven Diamonds produces PCM sheets. These sheets are produced by applying paint on sheets with rollers and then baking them to get the quality required for use in different industries. The paint is easily available from domestic sources. There are several companies that produce this type of paint with great quality.

Both types of sheets can have different colors and patterns as desired by the customer. Even the thicknesses of films and paints can be altered. Some VCM coatings, for instance, have patterns such as leather, gloss, oily, etc.; the production of VCM films is a whole other business. Iran still depends on imports for the production of these paints as some of the raw material is not produced domestically. This can be a reason for imports of VCM sheets.

Regarding PCM sheets, however, the paint coating is restricted to a certain thickness, because the paint is liquid and if too thick, the paint can shed under pressure. But it is still possible to produce these sheets in different colors and patterns.

Manufacturers of home appliances use pre-painted sheets with thicknesses between 0.35 mm and 0.7 mm, while auto manufacturers use sheets as thick as 0.9 mm. These are the most commonly used sheets in the market.

How do you evaluate the domestic market for pre-painted sheets?

As I mentioned earlier, only 50% of our capacity for pre-painted sheets is utilized, which is due to sluggish demand. The industry is still not fully developed and total annual consumption might reach 150-200 thousand tonnes at best. Seven Diamonds and Mobarakeh each have a 40% share in the market, with other companies taking up small shares.

The position of pre-painted sheets in the market is gradually improving; consumers are starting to have faith in these products. Needless to say, a product cannot be expected to gain market share in the short term. For instance, an automotive manufacturer has been able to find customers after using a limited range of sheets for its products; it cannot suddenly change its products. It has to try new raw materials for some of its products first in order to test the market in the short- and medium-term before it can manufacture high-quality products based on what the customers expect. Many consumers of pre-painted sheets are past the trial stage and are interested in using them in their products. Relative to last year, demand has improved.

Both the technology and the raw materials exist for the production of pre-painted sheets in Iran, but the consumers and producers need to collaborate if production and consumption is to get a boost; trust should be built after mutually sharing opinions for further collaboration.

Are pre-painted sheets imported? What is your opinion on imports?

Some consumers used to import these products, but this year, thanks to the new strategy adopted by the Ministry of Industry, Mine, and Trade to promote the consumption of domestic products, only imports of low volumes and products that are not produced domestically are allowed. Moreover, some sheets, especially VCM sheets, are imported because certain colors and designs cannot be produced domestically.

How do blanking plants and sheet cutting factories connect the producers and consumers of sheets as one of the major links between the two?

Blanking, especially in the automotive industry, is a separate business. Steelmakers produce sheets in coils, which, obviously, can’t be used that way in consumer industries. Thus, coils are first sent to blanking plants, which are usually located next to large automotive manufacturers because blanking out different body parts from coils with minimum scrap is an art in itself; apart from large body parts, other smaller parts can be blanked out from the unused pieces of the coil.

There are blanking plants in Iran capable of cutting coils for different industries, including automotive. If our customers have a certain shape in mind, we send the coils to a sheet cutting factory to be prepared as the customer desires. These factories work on a piecework basis.

Even before the birth of the steel industry and the production of sheets in Iran, blanking and cutting plants were operating in the country to produce body parts for cars as well as other products for other industries; sheets were imported in coils and needed further processing before being used in automotive and home appliances.

With the current market conditions, are exporting pre-painted sheets?

Sheet exports have been banned for a long time, with the exception of one company. This is a strategic mistake made by the Ministry of Industry, Mine, and Trade because it is already difficult to find foreign markets and, when lost, it’s almost impossible and it takes a long time to get back to these markets. Exporters have had relationships with their foreign customers for several years, and when exports are stopped, they will lose their trust. With only one directive, exports stopped and exporters were required to return the foreign currency earned through exports. As a consequence of this strategy, customers won’t trust Iranian companies anymore.

We have already been paid for exports of over 5,000 tonnes of pre-painted sheets and other products and we have returned the foreign exchange earning to the NIMA system, but export permits have not yet been issued. Even if we get the export costs from the government and refund the customer, the relationship will without a doubt end. Government decisions about exports are always without an expert and logical basis; what’s worse, the media is always silent on the matter.

The Ministry of Industry, Mine, and Trade erroneously considers steel sheets raw materials. The government is exporting crude oil, which is obviously considered raw material; this is a contradiction. Exports of iron ore are another instance of the government contradicting itself. Iron ore should be first offered in the IME for three sessions, and then exported if it is not sold. Unlike crude oil and iron ore, steel is a finished product with great added value. Iron ore ($60-70 per tonne) can be used to produce sheets worth $500-600 per tonne, which means that steel sheets create a ten-fold added value and are not considered raw materials anywhere in the world.

How does the government justify export bans?

As I said before, there is no logical explanation for banning the exports of steel sheets. But the justification offered by the government is price adjustment. The same thing that happened to dollar rates after official rates were enforced will happen to steel. It was already obvious that official pricing will not work. One should not make the same mistake twice, but that doesn’t seem to be considered a mistake by our politicians. It is public knowledge that over the past 50 years since official pricing started in 1348, it has always failed; yet the same mistake is made about different products.

Any mechanism for stabilizing prices and price subsidies will lead to either of these two outcomes: the decline of production and consumption, or a jump in the prices. Attempts at stabilizing prices will rob both producers and consumers of the will to ramp up production and consumption. Moreover, the government can control the market up to a point; the market will find its own way, regardless of official orders. The jumps in dollar rates over the years are being repeated, without the government learning anything. Once the transition period for the steel industry and steel sheets is over, everyone, including the government, will blame the current conditions.

Steel price stabilization will not benefit consumers. The first link after producers, mostly intermediaries and dealers, will benefit the most from price subsidies. The main problem in the country’s industries is official price stabilization.

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