India is one of the major exporters of ferroalloys to Iran and, in turn, sources crude oil from the Islamic Republic. Now, with the cloud of sanctions hovering over bilateral trade between India and Iran, the safest route would be to switch over to the barter mode of commodity exchange, as financial transactions involve high risks. There is a silver lining too. Indian companies might now smell a golden opportunity of setting up business operations on Iranian soil, what with competition having slowed down after the sanctions.
Iran’s aggressive steel sector plans
As the largest steel manufacturer in the Middle East and North Africa region, Iran has been pushing forward its national steel industry development programme that aims at near-doubling its capacity to 55 MnT by 2025 from the current 32 MnT per year.With this boost to Iran’s steel sector, the country’s demand for ferroalloys is increasing rapidly.
Will fresh sanctions negatively impact Iran’s steel and ferroalloys sector?
The recent sanctions are likely to adversely affect Iran’s steel sector thereby affecting the country’s demand for ferroalloys. This is because European plant makers including SMS, Daneili, Sarralle, Outotec and Voestalpine have invested in expanding Iranian steel production projects since the JPCOA became effective in early 2016. The new mills are expected to be seriously hit by financing difficulties stemming from US sanctions. As per trade sources, many have already come to a halt amid uncertainties over US policy.
In Iran, financing has always been challenge for these projects in which only banks with no US connections have been able to participate. Thus, there are chances that Iranians may turn to Chinese technology for their steel and metals development projects if the European companies back out.
Iran depends on Indian imports
Apart from domestic production, Iran has been importing ferroalloys from India, especially after India amended its foreign trade policy by lifting sanctions on trade with Iran in 2016. This decision came on the heels of the Joint Comprehensive Plan of Action (JCPOA) in Jan’16, under which most of the western sanctions on the Islamic Republic were lifted.
According to customs data, in 2016 India exported 37,725 tons of ferroalloys to Iran, which increased by 64% to 61,850 tons in 2017. Between January and May of the current year, exports have clocked 34,142 tons.
Will Rial’s precipitous fall hit Indian ferroalloys exports hard or could it be a blessing in disguise?
In May 2018, the US announced the re-imposition of economic sanctions on Iran, which means that any country or company having trade relationships with Iran would be subject to secondary sanctions.
The immediate adverse effect of these sanctions was seen in Iran’s currency depreciation, which has lost more than 50% of its value in the past four months. The Rial has touched a new low this week against the US dollar trading at an average of 112,000 in the country’s black market from around 90,000 last week.
As a result, imports of ferroalloys have become significantly costlier in Iran. “After the US sanctions and the ongoing currency depreciation it has become quite difficult to import ferroalloys and thus we are hoping that the government would formulate a fresh policy to ease the burden,” said an Esfahan Steel Company official.
According to ferroalloys traders in Iran, India is one of the major exporters of ferroalloys to Iran and, in turn, sources crude oil from the Islamic Republic. Now, with the cloud of sanctions hovering over bilateral trade between India and Iran, the safest route would be to switch over to the barter mode of commodity exchange, as financial transactions involve high risks.
Another option could be an INR-based payment mechanism for trade that India adopted during the 2015 sanctions that prohibited purchases from Iran made in dollars.
At a time when sanctions on Iran could derail its trade with India it could simply trigger a stimulus however, which could end up boosting ferroalloy demand from India. Indian companies might now smell a golden opportunity of setting up business operations on Iranian soil, what with competition having slowed down after the sanctions. To know more about trade possibilities with Iran, attend The International Ferro Alloys Conference, 5-7 September 2018 | The Oberoi, Gurgaon, NCR Delhi. For more details please visit ferro.steelmint.com.