EghtesadOnline: China has taken fewer shipments of iron ore from Iran over August and September, according to Refinitiv Eikon data, as additional export tariffs due to be imposed by Tehran have dampened risk appetites in the world's biggest steelmaker.
Iran's Ministry of Industries, Mining and Trade has imposed 20-25% duties on the export of unprocessed minerals as of Sept. 23.
According to Deputy Industries Minister Jafar Sarqeini, the decision is aimed at supporting domestic production, preventing the export of unprocessed minerals and generating more value-added, Financial Tribune reported.
The official noted that exports of iron ore concentrates and pellets will see 25% duties, the Industries Ministry's news service Shata reported.
Iron ore appears to be at the forefront of the new restrictive measure, as experts warn Iran is facing a shortage of iron ore to feed its steel industries in the near future.
Iran shipped 319,920 tons of iron ore to China in August, down 37.8% from July and 23.4% lower than a year earlier, according to Reuters calculations based on vessel-tracking and port data compiled by Refinitiv.
In September so far, China has taken 129,534 tons of iron ore from Iran, according to the same calculations and data.
"Not many traders buy iron ore from Iran because of the US sanctions," said Zhao Yu, an analyst with Huatai Futures, adding that the freight charges are also high.
Two Chinese traders told Reuters they could only use cash and telegraphic transfer as payment methods, as it was "too sensitive" to go through banks for transactions with Iran.
"The main advantage of Iran ore is its low cost," said a trader who buys 2-3 million tons of iron ore from Iran annually.
"If [Iran's] prices go up [from the tariffs], they can be totally replaced by other mainstream ores," he said when asked why China did not buy more before the tariffs go into effect.
“The tariffs were announced on a short notice. There's not enough time to buy, load and clear customs."
The trader said his company was considering substituting iron ore from Africa or Southeast Asia for Iranian ore.
Iran shipped a total of 17 million tons of iron ore to overseas markets in the last fiscal year (ended March 20, 2019), according to data from the Iranian Mines and Mining Industries Development and Renovation Organization.
China, the world's biggest iron ore market, consumes about 90% of Iran's exports of the material. It bought 14.7 million tons of iron ore from Iran in 2018, accounting for 1.4% of its total imports.
"Applying such export tariffs from this month is too early," said Keyvan Jafari Tehrani, an independent analyst of the iron and steel industry.
"I doubt whether the quantities [Iran] used to sell to China could be absorbed totally by the local market at the beginning."
Miners and lawmakers in Iran have been locked in a heated debate over the issue of unprocessed mineral exports, especially iron ore for years. Government officials believe that Iran’s rising steelmaking capacity, which is expected to reach 55 million tons by the end of 2025, requires a steadily increasing feedstock of iron ore and that exporting the material is against the industry’s interests.
Bahram Soltani, the head of Iranian Steel Producers' Association, says the domestic market should be given priority for supplying iron ore and only the surplus should be left aside for exports.
“This is while due to the ease of trading and high demand in global markets, iron ore is sold without being processed in Iran,” he said.
Moreover, exports become more lucrative when the value of national currency declines. The rial lost nearly two-thirds of its value over the last fiscal year.
According to Minister of Industries, Mining and Trade Reza Rahmani, 10% of Iran's iron ore output are currently exported.
Nematollah Mohseni, an official with Esfahan Steel Company, said excessive exports of iron ores have caused many steelmakers, including ESCO, to operate below capacity, IRIB News reported.
On the other hand, Iranian iron ore miners, many of whom belong to the private sector, believe that their looming specter of bankruptcy can only be averted through exports, arguing that exports are their last remaining lifeline amid the unbalanced domestic market.
Iran accounts for about 3% of global iron ore reserves that are estimated to be 4.5 billion tons in over 200 ore deposits.
According to the United States Geological Survey, Iran holds the world's 10th largest iron ore reserves.
Sajjad Ghoroqi, a member of Iron Ore Producers and Exporters Association of Iran, noted that over 60% (93) of Iranian mines hold less than 1 million tons of iron ore and are mostly operated by the private sector.
About 26% (41) of the mines possess 1-10 million tons, 4% (7) hold 10-50 million tons and 5% (8) boast reserves of more than 50 million tons. Larger mines are either completely state-owned or semi-privatized.
Ghoroqi said small- and medium-sized iron ore mines account for only 5% of Iran's total reserves, while constituting 24% of Iran’s total annual ore production.