“There is a shortfall of sheets for the production of steel pipes and profiles”
CEO of Sadid Industrial Group in an Interview with ‌FelezatOline:

“There is a shortfall of sheets for the production of steel pipes and profiles”

“The production of steel pipes and profiles is suffering from a tight supply of raw materials. The industry is operating at 30% capacity, because the only producer of hot-rolled coils cannot meet all of the demand. There must be more large producers so that the industry can grow,” said Amirhossein Kaveh, CEO of Sadid Industrial Group.

In an interview with FelezatOnline, Kaveh said: “The domestic capacity for the production of pipes and profiles is about 18 million tonnes, but only 4-5 million tonnes of that capacity is currently utilized. The capacity was developed in line with the 1404 vision.

“The country must produce 55 million tonnes of steel, according to the 1404 vision. About 25 million tonnes of sheet must be produced, which can be used to produce pipes and profiles. If all parts of the steel industry had gone according to plans, we wouldn’t have shortfalls in the industry.”

The CEO said the production of steel profiles depends on the general economic conditions of the country: “With a proper business environment, the production of steel profiles will also grow.”

Kaveh pointed out that Iranian producers have over 500 types of profiles: “Producers have managed to survive the current crippling recession and negative economic growth. But most of them are operating at a third of their capacity.”

He expressed hopes that with the growth of civil projects and construction in the housing sector, the profiles industry will also grow: “Exports must move away from selling raw materials to selling finished products. The crackdown on selling raw materials should not be limited to iron ore exports only. The exports of ingots and sheets as raw materials for downstream businesses should also be controlled.

“The unused capacity can be utilized by developing exports. When high-quality steel profiles are exported at the right price, we can overcome the recession.”

The primary issue with the industry is the tightness of raw materials

Regarding the problems of the industry, Kaveh said: “The tightness of raw materials and quotas on sheets are major problems. As long as there are quotas on sheets, producers won’t be able to utilize their full capacity. HRC accounts for about 95% of raw materials, but galvanized sheets are also used for special applications.”

Kaveh explained that the domestic steel production is not integrated: “Production must be in a way that no part of the supply chain faces shortfalls of raw materials. Far from self-sufficiency, the domestic production of sheets relies on imports. But it doesn’t mean that the industry is self-sufficient when sheet imports stop; rather, it means that the production of profiles is declining. Currently, sheet imports have declined due to currency problems resulting from the sanctions; this does not indicate self-sufficiency in sheet production. It should be noted that over the past few years, about two to three million tonnes of the demand by profile producers would be imported.

“There would be no need for concern if the domestic capacity of sheet production was expanded as imports were cut. Some people are taking advantage of the sheet import cut, while it is the essential raw material for the production of pipes and profiles, which is cause for concern.”

Kaveh said that the production of pipes and profiles is almost self-sufficient: “There are 140 producers of steel pipes and profiles, which can produce 600 types of products. Put another way, there are no pipes or profiles in the world that cannot be produced in Iran. Seamless pipes are the exception and need to be imported.”

Raw materials are provided by only one company.

He pointed out that HRC suitable for the production of pipes and profiles is produced in three large domestic companies: “About 90% of the HRC is produced in Mobarakeh Steel, while Ferro Gilan and ARPCO account for 6% and 5% respectively. The two latter companies get their slabs from Mobarakeh Steel. Thus, there is in fact one supplier of raw materials for the production of pipes and profiles.

“Mobarakeh Steel can never fill the 13-million-tonne void in the production capacity of pipes and profiles. Three companies as big as Mobarakeh are needed in order to supply enough raw materials for producers. The production of pipes and profiles has better added value and higher profit margins compared to the upstream sector. Mobarakeh Steel had over 17 trillion tomans in net profit last year; this money can be used to establish two other countries the size of Mobarakeh Steel with definite profitability.

“Providing raw materials to an industry as big as the production of pipes and profiles can definitely not be done by one company. The industry must move forward according to the 1404 vision so that none of the parts have to deal with shortages of raw materials.”

He went on to complain about exports of raw materials: “Both slabs and ingots as well as HRC are exported, while rolling mills and producers of pipes and profiles are suffering from shortfalls of raw materials. By exporting ingots and slabs, energy subsidies are being exported; that was not supposed to happen. Conversion industries were established on hopes of having adequate raw material supplies and not having to import. Many of the downstream capacities such as automotive, appliances, barrel making, and pipes and profiles are left without raw materials. This indicates that the steel industry has grown unevenly.”

The path of HRC supply should be changed.

Pointing out that HRC is priced on the IME, Kaveh added: “Supply and demand on the IME is limited and controlled, which is out of sync with the primary principles of the market. This means that there is no real supply and demand. Restrictions include tonnage, offer day, product type, and buyer circumstances. On the demand side, there are 15 primary conditions that must be met, including being a producer, registering on the Behinyab platform, etc.

“As the largest producer of steel sheets, Mobarakeh Steel faces restrictions regarding the supply of its products on the IME; it can’t supply all of its products on the IME because it has some direct-matching customers. Moreover, given the large number of buyers, demand always exceeds supply. The buyers are also limited and not all of them can buy HRC on the IME. Thus, I personally think that the IME is not a place to discover prices, but it’s rather where prices are set. It does have advantages too, such as showing the excess demand to supply ratio.

“The raw materials issue is just cast aside by the officials. But the IME price corresponds with the global price. Thus, Mobarakeh Steel offers HRC at global prices. Since Mobarakeh is the only supplier of raw materials to producers of pipes and profiles, middlemen should be removed so that producers can buy raw materials directly from Mobarakeh.”

Kaveh said that buyers have to take whatever price the seller offers: “To keep their operations running, producers have no choice but to buy raw materials. Thus, complicating the purchase process is only a waste of time.

“Suppliers used to sell their products through three-month futures contracts on the IME, but now all futures contracts are one- or two-month. If three-month credit purchases come back on the IME, producers will have more time to pay for their raw materials.”

Satisfied with the managerial approach of Mobarakeh Steel, Kaveh said: “Thanks to the supportive strategy of the new manager of Mobarakeh and the company’s sales and marketing manager, problems of producers have been minimized. Senior managers of Mobarakeh give a lot of help and support to downstream businesses.”

The production of profiles is growing despite the sanctions.

“Exports of profiles have doubled or tripled over the past two years despite the sanctions; with the weak domestic market, producers have shifted their attention toward exports in regional markets. The volume of exports is not very significant, but it has grown compared to the previous years.

“Construction products constitute a large part of sales and exports. But the major problem with exports of profiles is that they should be produced from sheets with a thickness of 1.8mm, while most producers prefer to use sheets thicker than 2mm.”

On a positive note, Kaveh said that the production of profiles is alive and robust, like many other industries: “The latest machinery and processes are used in the industry; technology is not an issue. There will be a fair from Mehr 18 to 21 where domestic manufacturers of machinery for pipes and profiles will present their latest achievements.”

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