Boston, MA -- (SBWIRE) -- 09/09/2013 -- The outlook for Iran's steel sector remains poor; however, there are a few signs of light given the election of Hassan Rouhani and possible moderation in tone towards the West. On the whole, however, we are far from sanguine given our bearish outlook for steel prices and the fact that any rapprochement with the West, if indeed it happens, will be drawn out and not have a significant impact in the near term. We note with scepticism, Iran's plans to increase its steel capacity from 20mn tonnes per annum (mntpa) to 55mntpa by 2025, as well as a tripling of aluminium smelter capacity to 1.5mntpa.

While a cut in external trade has impacted negatively on the steel industry, isolation has ensured that imports have also been restricted. However, domestic industrial deficiencies in certain market segments mean that Iran will struggle to meet its own needs in spite of declining consumption. Crude steel output rose 11.1% year-on-year (y-o-y) to 13.27mn tonnes in the first 11 months of 2012, representing one of the strongest growth rates in the world, rivalling Turkey's.

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Nevertheless, due to infrastructural problems and a lack of billet and rebar capacity, the country is still dependent on imports to serve the market, mostly from Turkey. Meanwhile, growth in the manufacturing of steel products has slowed markedly, with existing crude steel capacities unable to sufficiently supply to downstream industries and therefore exacerbating the dependence on imported supplies. Weak points remain, with flats demand coming under pressure as automotive output suffers from declining domestic demand. Over the medium term, Iran will be reliant on exports, at a time when it is becoming harder to sell on external markets.

Iranian trade has been affected by international sanctions, with the country having to manoeuvre strategically to meet domestic demand and maintain the robust production growth seen a few years ago. Iranian steel production grew by 10.0% and 8.7% in 2010 and 2011, and BMI forecasts that growth will remain robust in Iranian steel production; however, this will begin to slow down from 2014 until the end of our forecast period in 2017.

The country's political situation has affected many of its trade dynamics and the negative impact on imports and exports of steel has meant that the domestic industry has had to find a way to ensure that demand is met by ramping up production and clearing stockpiles to make room for imported steel.

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