The two major suppliers of Graphite Electrodes to Iran are China and India, with the former contributing about 70% of Iranian imports and the latter about 10%. But with sanctions in place, both countries have turned sceptical about dealing with Iran. Now, the question arises as to how Iran will meet its Graphite Electrodes requirement to ensure uninterrupted steel production.
In 2018, the United States re-imposed sanctions on Iran that it had lifted just a couple of years back. The first round of sanctions that came into effect in August 2018 included restrictions on Iran’s purchase of US currency, Iran’s trade in gold and other precious metals, and the sale to Iran of auto parts and commercial passenger aircraft. The second set of sanctions, which became effective in November last year, restricted exports of oil and petrochemical products from Iran.
As expected, the sanctions took a heavy toll on the Rial, with inflation touching triple digits as Iranians scrambled for US dollars and gold. While the entire economy reeled under uncertainty over the possibility of adverse consequences, Iran’s steel industry – a strategic industry for a developing economy heavily reliant on construction – grew apprehensive about seamless supply of raw materials. As the majority of steel production in Iran takes place via the EAF (Electric Arc Furnace) route, the country’s requirement of Graphite Electrodes, a key raw material for electric furnaces, is majorly met via imports.
Does Iran have enough Graphite Electrode stocks?
Iran has steel production capacity of 34 MnTPA and plans to scale up production to 55 MnT by 2025. According to sources, Iran was prepared for the sanctions and steelmakers and traders had begun stockpiling Graphite Electrodes for six months or so before the sanctions were imposed. This somewhat explains the growth in Iran’s crude steel production in 2018.
Iran’s steel production rose to a record 20.6 MnT in the first 10 months of the Persian year 2018-19 – Y-o-Y growth of 10% – making the country the world’s 11th biggest steel producer, according to World Steel Association data published recently. As per the industry estimates, this figure may rise to 25 MnT by the end of the current Persian year.
Amid currency depreciation due to sanctions, exports have become more lucrative for Iran’s steel producers. According to the CEO of Tehran-based AASIM Consulting Group, Iran’s steel exports this year, which ends on 21 March, 2019 are set to equal last year’s record of over 9 MnT. The country has so far exported 6 MnT of steel in the current year, at least half of which are semi-finished products such as billets and slabs. Despite the sanctions, Iranian steelmakers have largely maintained links with their partners in the Middle East, Russia, China and the European Union.
Iran’s Imports from India Slide
Iran’s Graphite Electrode imports have registered a 24% rise Y-o-Y from 87,840 tonne in 2017 to 109,331 tonne in 2018. Surprisingly, out of the total imports, the highest quantity of 79,671 tonne has been booked from China followed by Germany at 11,089 tonne and India at 10,647 tonne. In 2017, Graphite Electrode imports from China stood at 63,852 tonne, followed by India (11,443 tonne) and Germany (5,059 tonne).
Even a cursory look at Iran’s Graphite Electrode imports in the post-sanctions months from August to November reveals that the highest quantity has been shipped from China whereas imports from India have plunged significantly. According to a few market participants, Chinese suppliers are still shipping Graphite Electrodes on FoB terms and in order to circumvent restrictions due to sanctions exports are being re-routed via a third country.
Iran contributes about 7-8% of the Indian Graphite Electrode export market. However, after the sanctions Indian producers are avoiding trade with Iran because Indian electrodes manufacturers source needle coke (a key raw material for Graphite Electrodes) mainly from the US and entering into trade deals with Iran will likely result in imposition of secondary sanctions on Indian companies thereby disrupting their production.
IMIDRO Needs Funds for Graphite Electrode Project
The Iranian Mines and Mining Industries Development and Renovation Organisation (IMIDRO) has been seeking the remaining funds required by Mar’19 for the completion of the first Graphite Electrode plant in the country.
In 2018, IMIDRO had formed a joint venture with Mobarakeh Steel, Khorasan Steel and Chadormalu to help in setting up the plant. The 350 million Euros (USD 400 million) Ardakan-based project has been on the cards since long but is yet to be completed. According to IMIDRO, about 170 million Euros of funding is still required.
The plant will have 30,000 tonne capacity with a provision to expand capacity up to 45,000 tonne. IMIDRO is seeking early completion of the project in order to address the country’s concerns regarding Graphite Electrode procurement.
What the Future Holds
The completion of IMIDRO’s plant will take time, plus Iran’s electrode requirement is higher than the plant capacity. Thus, in order to meet its requirements, Iran has to source Graphite Electrodes from other countries.
While it is unlikely that the US will lift sanctions anytime soon, Iran will have two options: to stop its ambitious steel production plans or resort to illegal means to procure electrodes via a third country.
France, Germany and Britain have set up a financial mechanism, ‘INSTEX’, designed to avoid US sanctions against Iran. INSTEX, which stands for “instrument for support of trade exchanges”, was registered in the first week of Feb’19 in Paris with an initial capital of 3,000 Euros as a proposed payment channel from Europe to Iran and vice versa.
INSTEX will support legitimate European trade with Iran, focusing initially on the sectors most essential to that country such as pharmaceuticals, medical devices, and agri-food products.
With this mechanism in place, market participants are hopeful that Iran may finally be able to secure its Graphite Electrode requirements. However, industry sources have confirmed that this mechanism will take time to be fully operational.