Iran’s steel market under pressure from sanctions: New prediction for the future of iron and steel
The return of sanctions has always been one of the most significant threats to Iran’s steel industry. This exclusive article from Ahan666 examines the effects of sanctions on the steel industry, its weaknesses and strengths, and possible future directions to provide an accurate and comprehensive picture of the Iranian steel market.
Thank you for reading this post, don't forget to subscribe!The current situation of Iran’s steel industry in the face of sanctions
Iran’s steel industry is currently facing a set of economic, political, and infrastructural pressures that could severely impact production and exports. One of the most important of these pressures is the limited supply of imported technology and advanced components, which forces many factories to use worn-out equipment or frequent repairs. This not only reduces product quality, but also significantly increases production costs. In addition, sanctions on international companies and intermediaries limit producers’ access to sales and financing networks, leaving companies with liquidity problems and reduced working capital. The sharp fluctuation of the exchange rate and the free exchange rate also increases the cost of raw materials and machinery in an unpredictable manner, making it difficult to reinvest foreign exchange earnings into production. Power and energy constraints, especially during peak demand, pose a serious threat to steel production, with weekly market reports indicating that up to 40% of the country’s production capacity is at risk of supply cuts due to energy constraints. All of these factors have led even large producers to face reduced actual capacity utilization rates, leaving them significantly behind their plants’ technical potential.
The impact of sanctions on Iranian steel exports
The return of sanctions could have many direct and indirect effects on Iranian steel exports. On the one hand, restrictions on foreign sales and international buyers’ reluctance to deal with Iranian companies will reduce foreign exchange earnings, and on the other hand, these restrictions will pressure the competitive value of Iranian products in regional and global markets. Sanctions usually involve intermediary companies, insurance, transportation, and banks involved in financial transactions, which indirectly limit the possibility of exports. As a result, Iran’s export markets in neighboring countries and consumer regions such as the Middle East, Central Asia, and Africa may become insecure, and Iran’s market share may be taken over by regional competitors. This situation could force steel producers to find alternative routes or less risky markets, which in turn will increase logistics and export costs. In addition, the psychological effect of sanctions on investors and companies reduces the incentive to invest in development projects and improve production capacity, and in the long term, it could lead to a decrease in Iran’s competitiveness in the global market.
The effect of sanctions on production costs and energy resources
Sanctions not only affect exports, but also put heavy pressure on domestic production costs. Restrictions on the import of advanced machinery parts and spare parts force factories to use old equipment and carry out frequent repairs, which in addition to increasing operating costs, also reduces the quality of the final product. Also, restrictions on the supply of energy and electricity during peak consumption pose a serious threat to production and may cause a halt or a sharp reduction in production capacity in some units. Weekly reports on the Iranian steel market state that up to 40% of the country’s production capacity is at risk of supply reduction due to electricity and energy restrictions. Severe exchange rate fluctuations, the price difference between the exchange and free currencies, and the difficulty of returning exported foreign currency to the production cycle also increase the cost of supplying raw materials and put pressure on companies’ liquidity, which can ultimately lead to a decrease in profitability and an increase in financial risk in the steel industry.
Strengths and survival tactics in Iran’s steel industry
Despite all the restrictions, Iran’s steel industry has points of resistance that help it continue its activities. First, the experience of going through past sanctions periods and the existence of solutions to circumvent sanctions, including the use of informal routes and intermediary companies, allow producers to maintain part of their capacity. Second, the existence of a large domestic market, including the construction sector and subsidiary industries, can help absorb excess production capacity and prevent a sharp decline in production. Third, the diversification of steel production in different provinces reduces the concentration of pressure and allows for crisis management in specific units. Therefore, even the return of sanctions cannot completely destroy the steel market, but it will severely pressure the overall performance of the industry, and small companies and marginal producers will suffer the most.
Possible future scenarios for the Iranian steel market
The outlook for the Iranian steel market depends on several main scenarios:
1. Government support policies
If the government and relevant institutions take measures such as facilitating the export process, ensuring the return of export currency, allocating sustainable electricity, and providing tax exemptions and investment facilities, many of the negative effects of sanctions can be mitigated. In this situation, the domestic market can play an important role in absorbing excess production capacity and the pressure of sanctions can be greatly reduced.
2. Severe and widespread sanctions
In the pessimistic scenario, the export sector declines sharply and the domestic market bears a heavy burden. In such a situation, the price of rebar and ironwork may experience sharp fluctuations, with a decrease in supply causing prices to rise, and a recession in the construction sector and downstream industries increasing the likelihood of price declines.
3. Variable growth in the long term
If the macroeconomic environment is favorable, the Iranian steel market could experience variable growth rates between 2025 and 2029. However, a full return to production capacity will be difficult, and significant growth requires economic stability and sustained supportive policies.
Summary and conclusion
Sanctions are certainly putting a heavy strain on Iran’s steel industry, especially in the areas of exports, technology and component supply, and production costs. However, these pressures rarely bring the industry to a complete standstill. Large companies and major production centers can manage some of the challenges with government support and domestic capacity, while small companies and marginal producers will be hit the hardest. Iran’s domestic hardware market can fill some of the export gap, and with supportive policies and economic stability, Iran’s steel industry will be able to regain some of its capacity even under sanctions.
