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With plentiful iron ore and coal resources to exploit, Iran is set to become a leading steel producer in the years ahead, but BMI's Iran Metals Report identifies a number of economic, political and infrastructural hurdles to overcome before it achieves its aspiration of doubling capacity to 40.5mn tonnes per annum (tpa) by 2012. Iran will not escape the effects of the global economic downturn, although the forecast decline in steel output will not be as severe as in other producing nations.

In 2008, Iran's steel output fell 0.9% to 9.96mn tonnes, with most of the fall in output occurring in Q3 rather than Q4, in contrast to the global trend. Combined output in the first two months of 2009 actually rose 20% year-on-year (y-o-y) to 1.9mn tonnes, amid strong demand from construction, particularly in relation to ongoing projects in the oil, gas and petrochemicals industries. This is not a situation that BMI believes can be sustained in an increasingly difficult economic and political environment. Through its dependence on oil export revenue, Iran's economic health is intrinsically tied to the state of the global economy.

As a result of the credit crunch and declining oil revenue, steel consumers - particularly in the construction and automotive industries - will run out of cash and financial support as well as being faced with low demand for their products. BMI forecasts an 8.7% drop in steel production in 2009. Although this may seem bearish, it is not a worst case scenario. If Iran enters into recession in 2009 or 2010 and oil prices are lower than we expect, output in metals could plunge further. BMI also envisages a late recovery in the industry, with signs of growth unlikely until H210. However, when the recovery does occur in 2011, growth will be in double digits and BMI believes that Iranian crude steel production will comfortably exceed 20mn tonnes in 2013. In an effort to boost domestic production, almost US$5bn worth of steel projects were underway in Iran by Q109, around half the total in the Gulf. Eighteen projects are currently under construction in Iran, although many of the schemes face delay or cancellation due to the reluctance of international companies to provide technology and finance. In November 2008, three large-scale steel projects came on stream in Khuzestan province. Around US$170mn has been spent on the projects which will increase the province's annual steel production capacity to 3.4mn tpa from the current 2.4mn tpa. In October 2008, a contract for the construction of a second blast furnace at Khorasan Steel Complex (Rural Insurance Investment Fund (41.7%), the Mines and Development Investment Company (27%), and the Steel Industry Pension Fund (20%), smaller investors (11.3%)) was signed. At the same time, the first furnace will be increased from 750,000tpa to 850,000tpa. The completion of the project will increase its capacity 1.8mn tpa. The company is constructing two 800,000tpa direct reduction units one of which was to be commissioned by the end of the 2008/09 Iranian year and the other by mid-June 2009. Also in October 2008, the South Steel Complex came onstream as a joint venture between the Iranian private sector and Indian investors in the Khalij-e Fars (Persian Gulf) Special Economic Zone. The project has four phases, which are set to bring capacity to 800,000tpa with a total investment of US$330mn. In the aluminium industry, capacity is also expanding rapidly, led by the Iran Aluminum Company (Iralco). Construction of the 147,000tpa Hormozgan Aluminium Plant (Hormozal) is underway. The project is scheduled to come onstream in October 2009, but the government is confident it will be operation before then. In October 2008, Iralco announced the completion of the second phase of the Arak Aluminum Company renovation plan with production capacity of 36,000tpa coming on stream. The final third phase is underway and is set to boost the company's annual production capacity to 110,000tpa of aluminium bars.

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Business Monitor International (BMI) offers a comprehensive range of products and services designed to help senior executives, analysts and researchers assess and better manage operating risks, and exploit business opportunities, across 175 markets.

BMI offers three main areas of expertise: Country Risk BMI's country risk and macroeconomic forecast portfolio includes weekly financial market reports, monthly regional Monitors, and in-depth quarterly Business Forecast Reports. Industry Analysis BMI covers a total of 17 industry verticals through a portfolio of services, including Daily Alerts, monthly regional Insights, and in-depth quarterly Country Forecast Reports. View more research from Business Monitor International at http://www.fastmr.com/catalog/publishers.aspx?pubid=1010

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