EghtesadOnline: The Iranian government has finally caved in to pressure by the private sector calling for reduction of import duties on flat steel products due to local producers’ inability to meet downstream demand.
High import tariffs were under fire by the private sector ever since they were introduced.
Steel import duties were the talk of the town for the past two years. Iran was first hit with the onslaught of cheap Chinese steel, prompting officials to set up a high tariff bulwark to safeguard local producers. The Chinese flood ceased in early 2016, but duties remained in place. This enabled domestic heavyweights, such as Mobarakeh Steel Company, to enjoy an unofficial monopoly over the local flat market and quote domestic prices higher than exports.
Downstream producers, suffering from lack of access to foreign material and simultaneously undersupplied by local steelmakers, wrote several letters to President Hassan Rouhani and First Vice President Es’haq Jahangiri urging the government to prioritize domestic supply over underpriced exports and cut import rates, Financial Tribune reported.
At first, the government staunchly refused to lower the tariff wall. Angry remarks were traded: Downstream producers called the government overprotective of domestic steelmakers under its care.
On the other hand, steel producers refuse to acknowledge that they were undersupplying the domestic market with flat steel and slammed downstream users for trying to line their own pockets using cheap foreign steel.
Industries Minister Intervenes
The first change in the prevailing narrative took place in early December, as the Minister of Industries, Mining and Trade Mohammad Reza Nematzadeh sent a letter to Jahangiri, calling for a reduction of import tariffs to “prevent a rise in finished steel prices and boost weakened downstream sector’s output”.
About a month later, Iran Trade Promotion Organization’s Article One Commission agreed to halve the current duties on flat steel imports to 10%.
The commission, which comprises representatives of the ministries of industries, agriculture and economy, as well as those of the Central Bank of Iran and Iran Chamber of Commerce, Industries, Mining and Agriculture, also voiced its approval to reduce import tariffs on slabs to 5%, Mehr News Agency reported on Tuesday, publicizing Nematzadeh’s letter and the commission’s directive for the first time.
The government is yet to announce when the new rates will come into force.
At present, import duties are at 15% for semi-finished products; upwards of 20% (up to 26% depending on the width) for flat products, excluding stainless steel, and 26% for most long products, including I- and H-beams.
Trial and Error
This is a positive development for domestic steel industry’s downstream sectors, especially for Iran’s Syndicate of Steel Pipe and Profile Manufacturers who had to shoulder the brunt of market pressure.
“The industries minister finally saw eye to eye with the syndicate. What we ask next is to implement the new tariffs as soon as possible to save the market from recession and high prices,” said the syndicate secretary, Amir Hossein Kaveh.
Kaveh, who is also a member of Iran Chamber of Commerce, Industries, Mines and Agriculture, criticized the government for dragging its feet.
“For the past year, we maintained our position that high tariff rates will hurt local producers. What we had to do all along was limiting raw material exports and manufacturing high value-added products,” he said.
He also slammed Iran’s major flat steel producers for not being able to adequately supply the local market and prioritizing exports.
This is while global steel prices are steadily rising, which will make it even harder for steel pipe and profile manufacturers to acquire their requirements.
For instance, Mobarakeh Steel Company reached an agreement with the syndicate back in March to supply them with 600,000 tons of 2-mm sheets and 200,000 tons of less than 2-mm hot-rolled coils during the first half of the current fiscal year (March 20-Sept. 21).
According to Kaveh, MSC failed to live up to the agreement, leaving syndicate members high and dry.
Together with its subsidiaries, MSC is the largest flat steel producer in the Middle East and North Africa region and Iran’s largest steelmaker, accounting for 1% of Iran’s GDP.
The company accounts for approximately 50% of the country’s total steel output and also holds the same share in domestic flat steel consumption, which stood at about 7.5 million tons last fiscal year.
The market undersupply caused sheet prices to jump from 13,000 rials (0.33$) per kg to 23,000 rials ($0.59).
Kaveh attributed the market chaos to the government’s “unreasonable support” of large steelmakers such as MSC.
Describing the government’s trade policies as a practice of “trial and error”, Kaveh called for establishing an expert committee made up of industry and chamber of commerce representatives to thoroughly analyze the steel production chain and help rejuvenate the needy sectors by reviewing all the duty rates.