“We are on a mission to bridge the gap between the steel industry and the petroleum industry”
CEO of Khouzestan Oxin Steel:

“We are on a mission to bridge the gap between the steel industry and the petroleum industry”

The domestic steel industry has been seriously hurt by imports over the past few years; the HRC sector took the hardest impact. Despite the great capability of domestic producers, billions of dollars were spent on imports of HRC and pipes for gas and oil. Mobarakeh Steel, Khouzestan Steel and Hormozgan Steel can produce special-grade slabs. Oxin can produce wide HRC; pipe producers are capable of producing large pipes for oil and gas, but the cycle was disrupted by imports and these companies did not enter the oil and gas market. That was until the sanctions changed the course of events and domestic production came into focus. Rolling slabs is one of the most important parts of the process to produce oil and gas pipes; due to the complex thermal operations and thermodynamic rolling involved, only a handful of companies around the world are capable of the task, Oxin among them. Oxin was formed to produce sheets for petroleum and petrochemical industries, but the company suffered in terms of capacity utilization and profits as the focus was shifted away from domestic products towards imports. For this issue’s Insider Talk, FelezatOnline has interviewed Amin Ebrahimi, CEO of Khouzestan Oxin Steel to discuss the capabilities of the company to produce HRC.

Please tell us about the company and its capabilities.

Khouzestan Oxin Steel started as a subsidiary of Khouzestan Steel in 1388 (2009). The company was formed to bridge the gap between the steel industry and the oil and gas industry; it was specifically intended for the production of oil and gas pipes.

Oxin was based on the then-modern Italian Danieli technology. After a few years, the company was separated from Khouzestan Steel as part of the privatization policy.

Oxin can produce steel sheets up to 150mm thick, 1.1-4.0m wide, and 4.6-24.0m long. It also has the capability to produce common grades of steel sheets such as ST37 as well as API sheets for sour petroleum with X80 grade. There are only ten such companies around the world capable of producing different types of HRC; these sheets are used to produce large 56” pipes.

Oxin also has a thermal operation line with a capacity of 210 thousand tonnes per year; only four companies in the world have such a production line, which makes it very special with a wide range of products.

The nameplate capacity is about 1.05 million tonnes. To produce wide sheets, wide slabs are needed. The heaviest slab produced domestically weighs 14 tonnes and is 250mm thick, while Oxin requires slabs as heavy as 25 tonnes and as thick as 300mm in order to produce sheets with a width of 2.2m and achieve maximum utilization. Domestic slab producers are not up to the task, so our actual capacity is 750 thousand tonnes at best.

According to Danieli’s index, our products fall into three categories based on rolling mills. API oil and gas sheets account for 56% of our products, while alloy sheets used in shipbuilding, petrochemicals, pressure tanks, etc. account for 37% of our products; other merchant grade sheets take up the remaining share.

Due to conditions imposed on the company in the past such as sluggish demand, shortage of liquidity, raw material issues, and weak oil and gas projects, the products’ share was reversed; merchant grade sheets took over the share of API sheets, which accounted for only 10% of our total products. Merchant grade sheets held a 60% share and the remaining 30% went to alloy sheets for pressure tanks.

What properties do API HRC sheets have? What makes Oxin capable of producing them?

The United States pipes and profiles association defines the standards for the production of API sheets for the oil and gas industry. They have unique properties, making their production a special challenge. There are two types of oil: sweet and sour crude, which require different types of pipes. Sweet crude is completely desulfurized and non-corrosive. But when petroleum contains sulfur, API pipes are necessary to transfer it from wells to refineries. These pipes should have pure, micronized structures. There are two metallurgical processes in order to achieve API properties. In the first way, alloy slabs are used and the structure should be micronized when pouring the molten metal. The second method uses slabs free of impurities to begin with; they are then rolled in a complex process into API sheets. This process is called thermomechanical rolling.

The first method is very costly and can risk the economy of projects; thus, the second method is more common globally. Oxin is the only company with the thermomechanical technology in Iran as well as the MENA region.

Regarding the production of pipes for sweet crude, we are fully self-sufficient and free of any obstacles. Sour crude requires pipes that are more difficult to produce; we use slabs from Mobarakeh and Oxin’s production line to make that possible. Both companies are relatively mature, but the production process and the product can still be improved.

What types of HRC are currently produced by Oxin?

As mentioned earlier, Oxin has three categories of products. There is a 1.8-million-tonne pipeline project for sour crude currently underway and soon another two or three million tonnes will be added. Moreover, a large part of the existing pipeline network for oil and gas is worn out and in need of replacement and repair; most of these pipelines are for sweet crude. There will be great opportunities for Oxin.

Another category is the merchant grade sheets, mostly used in construction. These are mainly ST37 sheets, produced also by Mobarakeh and Kavian. Other merchant grade sheets are ST52 sheets used mainly in towers, factory buildings, and bridges. Oxin is almost unrivaled in the production of these sheets.

Alloy sheets are another part of Oxin’s products, known as value-added sheets in our own classification. These are used in pressure tanks, petrochemical plants, etc. This year, Oxin produced the domestic equivalent of Hardox, branded Oxinal; it has anti-wear properties. Used in the mining industry, it is imported from companies such as Sweden. These sheets include a wide range of products in 4-5 thousand grades. Slab procurement is the major challenge in the production of alloy sheets. Such slabs are ordered in small volumes, minimizing the economic margins of steelmakers in changing grades. Thus, steelmakers are reluctant to produce small volumes of slab. One solution is to consolidate all domestic demand in order to make production economic again; mining and petrochemical industries desperately need alloy steels.

How do you get your raw materials?

Three major slab producers (Mobarakeh, Khouzestan, and Hormozgan) provide Oxin with raw materials. We bought about 370 thousand tonnes of slab in the first half of this year. Raw material procurement is planned based on distance, production capability, and market conditions. Given Oxin’s sales policy shift from a charge-basis to direct sales, we buy merchant grade slabs (240 thousand tonnes) from Khouzestan Steel. API slabs (80 thousand tonnes) are procured from Mobarakeh Steel, while alloy slabs are bought from Hormozgan Steel. Given the increase in the production of API sheets, part of Khouzestan’s share might be taken by Mobarakeh. It should also be mentioned that we have signed a contract for 10 thousand tonnes of slab with Khouzestand and received about 6 thousand tonnes so far.

Despite the favorable quality of API slabs from Khouzestan, we can’t plan our production on them due to their dimensions and production capacity.

What is the HRC market like?

We rely on major oil and gas and petrochemical projects (mostly on a national scale) for 80-90% of our products. Imported products are the only rival for Oxin. Given the sanctions, Oxin is now enjoying a great opportunity to meet domestic demand and restore its status. The company will soon have massive oil and gas and petrochemical projects; we have signed a contract to deliver 400-500 thousand tonnes of API sheets for the oil and gas industry, with Mobarakeh currently producing X70 slabs for the project.

Regarding merchant grade sheets, there is demand for 20-35 thousand tonnes of Oxin’s ST37 sheets as well as 5-10 thousand tonnes of ST52 sheets when the market is good. Since Oxin did not use to have sour crude projects, it had to shift its focus toward the merchant grade market. But things have change over the past few months. With the major projects in API sheets, we have not produced ST37 sheets for two months. As a result, the sheet market has reached a balance in supply and demand because in late summer we produced and stocked fee-based orders for Bahman (January-February 2020). As we have entered API projects and cut down our fee-based merchant grade sheet production, our rivals in the production of these sheets are now doing better.

We prefer market balance. Too little or too much demand can hurt the production sector and its participants. Producers must be able to cover their own side expenses. Thus, over the past few months we tried to control and sustain the market and the price; it was hard because Oxin’s rivals in merchant grade sheets are not producers, but mainly traders who work with LC accounts and need to cash their money. The market for these sheets and specially ST37 is expected to remain stable. Since we don’t produce merchant grade sheets, we will use our stocks to prevent a supply shortfall and price hikes and maintain market balance. The merchant grade market must be in balance because these sheets are used in construction projects. If the price of ST37 sheets goes up, the costs of construction will increase, leading to inflation in real estate prices. Thus, construction contractors will consider replacing steel with concrete. Finally, as steel consumption in construction declines, steelmakers will lose their market over the coming years.

How do you expect the officials to help you by using Oxin’s full potentials?

Oxin is among the world’s top 10 producers of sheets; there are only four companies in the world with such hot rolling operations. Would they rely on Oxin to produce sour crude sheets if the sanctions hand not put pressure on the oil and gas industry? The first thing we want is a stop to imports of similar products and the use of domestic capabilities instead.

In the first eight months of the year, all of Oxin’s bank accounts were blocked. The company’s total debt exceeds one trillion tomans. Even the changes in the board of directors have not been registered yet, as simple as it is. All former CEOs and board members have been mostly banned from working due to banking problems, insurance issues, or overdue taxes. These problems have been offset recently by various projects because they have helped increase our liquidity and funding. Being a robust company, Oxin has a promising future.

The only thing we want from the officials is to stop the imports of the products that we can produce; there are no sheet applications in the oil and gas industry, military, petrochemicals, etc. that Oxin can’t provide for. But the production of these sheets requires timely procurement of raw materials. Oxin needs a steelmaking plant that can match it in capabilities and potentials; establishing such a plant is a priority plan for us. If the plan to join Khouzestan Steel is finalized, we will definitely use the company’s potentials for obtaining our raw materials. Otherwise, we will see to the implementation of the steelmaking plant with the existing shareholders.

There are a lot of unfinished or latent projects in various fields such as oil and gas, petrochemicals, military, etc. Oxin needs slabs to meet their needs, mostly in small volumes. Steelmakers don’t find it economically feasible to supply us with these small volumes. Given the added value of big-scale sheet production, we can’t take small-scale orders.

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