Iran steel export: perspectives and competitiveness in the MENA region 2 nd Iran Steel Export Perspectives Conference September 4, 2015, Istanbul, Turkey Andrey Pupchenko, Deputy Managing Director, Metal Expert

Contents I. Iran’s export in post-sanctions era II. Square billet as the most promising product now III. Competitiveness in the MENA region

I. Iran’s export in post-sanctions era

Iran in post-sanctions era – steel export opens first Nowdepressed domestic demand, limited export activity 1 st stageIranian banks get access to SWIFT 2 nd stage new players get access to international markets, export is the top priority, as weak currency made export very competitive, earn money first! 3 rd stage oil & gas industry recovery provides solid demand for tubes and sheet products at home 4 th stage economy speed up with massive improvements in construction industry and steel demand 5 th stageimport of downstream value-added products grows © Metal Expert

IMIDRO expects Iran’s export to double in 2015 © Metal Expert

in million t Total 4 Mt Khouzestan Steel Company 1.5 Mtbillets and some slabs Mobarakeh Steel 2 Mtflat products other producers – Esfahan Steel, etc. 0.5 Mtmainly billets The number of Iranian exporters is still limited in 2015 © Metal Expert

Capacity in Mt incl. IMIDRO 9.3 Mt (80% utilization) incl. independent0.1 Mt Export in 2015 about 2 Mt (mainly in the form of flat products) Idled capacity - export*not to grow further? Export of slabs does not seem to grow further * - Metal Expert estimates © Metal Expert

Capacity in Mt incl. IMIDRO 6.3 Mt (80% utilization) incl. independent/private 8.2 Mt (about 50% utilization) Export in 2015less than 2 Mt Idled capacity - export potential*around 4 Mt Square billets in Iran – there is some potential here * - Metal Expert estimates © Metal Expert

New steelmaking capacity1.650 New rolling capacity0.5 Billet surplus1.155 Million t Iran may be able to export additionally around 1.2 million t of billets in two years

II. Square billet as the most promising product now – fundamental shift

What creates new opportunities and disadvantages in global billet market? The end of 'super cycle' era Scrap price decreased much less comparing to iron ore Chinese billet export considerably increased

'Super cycle' in raw materials comes to an end as iron ore price loses 2/3 of its value © Metal Expert

Scrap price decreased much less comparing to iron ore as recyclers overinvested © Metal Expert

Relatively high scrap prices reduces EAF-based mini-mills competitiveness over steelworks © Metal Expert Source: World Steel Markets, Metal Expert estimates

Weak local market forces Chinese steel companies to boost exports © Metal Expert * - Metal Expert's forecast

III. Competitiveness in the MENA region

2 major trends in billet market: I. Mini-mills install EAFs (as heritage of old strategies – before 'super cycle' came to an end) II. Square billet replaces ferrous scrap at existing mills, i.e. billet consumption rapidly expands © Metal Expert

Billet demand estimated by Metal Expert (on the assumption of 100% rolling capacity utilization); million t Merchant billet market to expand in MENA Source: World Steel Markets, Metal Expert estimates billet market expansion new billet capacity 2016 Total Turkey North Africa GCC [3][3]1.2 Other1.0 0[1.4][1.4]

In 2014 billet import was 8.6 Mt In 2015 billet import is expected to be 11.2 Mt © Metal Expert Turkey's billet import to grow this year

Square billet replaces ferrous scrap in Turkey © Metal Expert

Square billet (rebar) production costs of main suppliers in MENA © Metal Expert

Conclusion After sanctions removal, Iran will begin to expand export, mainly square billets Billet demand from mini-mills is growing around the world and in MENA, in particular, due to overvalued scrap prices Iranian steel companies, with its own DRI, has the lowest cost in the region

What it is about New billet importers in the region, changes in market structure Estimates of billet consumption in the whole region, by countries and by new re-rollers Competitiveness analysis: comparison of billet production costs of main exporters into the region and local suppliers Comparison of rebar cost produced from different semis and raw materials (i.e. CIS-origin billets, Chinese-origin billets, the US and European scrap, HBI/DRI) Forecast of billet export into the region by CIS and Chinese producers Three-month price forecasts for billets in main importing countries (Turkey, Saudi Arabia, Egypt) Metal Expert provides exclusive data and analysis in new report MENA Billet Markets Subscription fee - $1350 Subscription department , , MENA Billet Markets is published twice a month Exclusive statistics Steel-melting and re-rolling capacities in MENA Square billet export by CIS plants Turkey billet market structure GCC billet market structure Egypt billet market structure

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