Israel-Iran war: Will it impact global steel trade?

• Iran's billet exporters hit, tenders find few takers
  
  
• Bulk commodities may be safe, freights can rise
  
  
• Will China, GCC fill up gaps in Iran's absence?
  
  

Morning Brief: On 13 April, Iran launched more than 300 drones and missile against Israel in what was the first direct attack on the latter from its soil. Both countries have never been on the best of terms for decades and the relationship has been rapidly deteriorating with the onset of the Hamas-Israel war in October last year, in which Israel believes Iran is a sympathizer. The Yemeni Houthi rebels which attacked vessels in the Red Sea from November last year, are also said to be an ally of Iran.

The rising tensions between both countries since October 2023 have been marked by accusations and counter-accusations, Israel's attack of the Iranian consulate in Damascus, and an Israeli ship seizure by Iran.

Why is Iran-Israel war being keenly watched in steel trade?

Iran is a key player in the global steel trade and naturally global markets are watching keenly which way the tide will turn if the war escalates further. Iran is the 10th highest crude steel producer, as per worldsteel. In January-December, 2023, its crude steel production touched over 31 mnt, rising almost 2% y-o-y.

Iran's finished steel exports in the last Persian year (21 March, 2023-20 March, 2024) touched 3.44 million tonnes (mnt), up 7% y-o-y, while total semi-finished exports rose 6% to almost 8 mnt.

Repercussion of war on steel trade

Billet exports hit: Although, there were no immediate impact after Iran's attacks on Israel, some repercussion is being gradually felt. For one, billet and blooms exports, in which Iran is a key player, were hit in the last Persian Year. Volumes showed 1% dip to 5.3 mnt y-o-y, which could be a spin-off of the growing geo-political hostilities and a pointer to "the shape of things to come".

Further, the Iranian billet export market witnessed a downtrend in the third week of April. Some Iranian mills had floated export tenders last week, but which remained inconclusive with buyers cautious due to the uncertain political scenario arising in the exports market.

Last week, a billet tender each from Chadormalu and Khorasan Steel could not fetch the right price. Participation in these tenders was thin. The mills sold because they had no choice. "I am surprised why Iranian exporters started floating tenders after Iran's attack. Ideally, they should have stayed away for a week or so," a trade source told BigMint.

Khouzestan Steel Complex (KSC) had floated an export tender of 30,000 t of billets and 50,000 t of slabs. The due date for the same was 24 April. However, in the latest update received, the company has extended the deadline till 28 April, underscoring the fact that Iran's billet exports have few takers now.

Billet export prices turn volatile: Iranian mill Sirjan Jahan Steel Complex (SJSCO) concluded an export tender of 15,000 t of billets at $469-470/t FOB Iran. The delivery is scheduled for end-April, as per sources. However, some offers were heard at higher levels of $480-490/t FOB Iran too. But, another was concluded at a lower price this week.

Meanwhile, Iran's domestic billet and rebar prices continued their downtrend due to increased supply and lack of demand.

Domestic billet sales on the Iran Mercantile Exchange (IME) declined 20% w-o-w, while the average sales price on the exchange remained largely flat w-o-w.

Insurance premiums, freights may go up: Many feel there is "40% probability" that Israel-Iran tensions will disrupt the shipping and oil trade in the Strait of Hormuz. US crude oil and Brent futures had fallen slightly earlier in the week on views from both Iran and Israel that the war would not escalate further. Iran is the third-largest producer in the OPEC.

Many feel with oil prices rising, insurance premiums are likely to go up which will have a cascading impact on shipping freights. However, a trade official said: "I do not see any impact on the dry bulk side really only some gas and oil ships are likely to be impacted."

"Within hours of the Israeli strikes, risk assets were already on their way down, with international oil benchmark Brent turning lower after a brief spike. So, for the time being, there is no major impact but the situation needs to be monitored," said a source.

Another source added: "Four-five days after Iran attacked Israel, the trade segment anticipated restrictions on movement of vessels through the Suez Canal. Prices of scrap, crude oil, steel jumped up. But these have cooled off now."

However, crude oil futures rose again on Thursday as the market weighed disappointing US economic data, and uncertainty over the Middle East crisis.

US sanctions a worry?: In a fresh volley, the United States recently slapped sanctions on over a dozen companies, individuals and vessels, including three from India, "for facilitating illicit trade and unmanned aerial vehicles transfers on behalf of the Iranian military". US sanctions on Iran are not new. The Trump government had come down heavily on Iran's steel and oil sector too. A source from Iran told BigMint the latest sanctions will impact Iran's steel industry. "Buyers of Iranian steel will be afraid of US threatening and lose interest in buying cargo from Iran," the source said.

Outlook

If Iran's billet trade gets impacted more extensively then it could benefit China since it is nursing idle capacity. "Chinese mills will likely take advantage of the supply constraints from MENA to fill up the gap," a source told BigMint.

Others said, the GCC countries active in billet exports may also benefit.

There are expectations that even though crude steel production in Iran will not be impacted, steel exports may face challenges in the near-to-medium term.

The Strait of Hormuz, a crucial passage for crude oil vessels bound for Asian markets primarily controlled by Iran, could potentially become a flashpoint if tensions between Iran and Israel escalate into a full-blown conflict. As geopolitical tensions persist, there is a possibility of upward pressure on LNG prices, which in turn could drive thermal coal prices higher. This scenario would particularly benefit thermal coal suppliers in Colombia, South Africa, Russia, and Indonesia, as increased LNG and crude oil prices would be passed on to them.