Lora: Hello, everyone, and welcome to our "Metal Movers" podcast. My name is Lora Stoyanova, and I'm editor for steel and ferrous products at Argus Media. Today's episode of the podcast is going to focus on the conflict in the Middle East and its impact on the steel market. And I'm joined by my colleagues who are closely following the fallout from the conflict, our senior reporters Carlo Da Cas and Elif Eyuboglu and our associate editor Brendan Kjellberg-Motton.
It has now been over one month since the conflict started, and we've seen a number of disruptions across markets and commodities. And naturally, oil and gas markets have experienced a lot of turmoil in March, which has a ripple effect on other products including steel. From the closure of the Strait of Hormuz through higher energy prices, higher freight rates, insurance premiums, the steel market has been directly and indirectly impacted by the conflict. And most notably, last Friday we also saw strikes on Iranian steel plants and threats of retaliation by Iran to target steel producers in the Gulf which, of course, intensified the direct impact of the war on the steel market. Now, Elif let's start with you. Can you walk us through the timeline of the conflict and what have been the direct, on-the-ground implications of the war in Iran and in the Gulf on regional production?
Elif: Hi, Lora, thank you for having me in this episode. So, right after the conflict began at the end of February, the effective closure of the Strait of Hormuz very quickly turned into a feedstock crisis for GCC mills. The closure immediately cut off inflow of metallic, semi-finished, and finished steel along with iron ore and HBR imports. On the long side, billet availability tightened almost immediately. En route cargos couldn't reach the Gulf, and that fed straight into cancelled orders and production cuts. We heard some rebar producers in Gulf skipping April shipments entirely because they could not secure billet for rebar output. And market participants estimate April rebar allocations were cut by around 30% to 35% and some re-rollers opted not to sell April at all.
And for flats, this situation is even more acute. Because the Gulf region relies heavily on hot-rolled coil imports, Asian flats steel cargos heading to the Gulf were stuck at Indian ports, literally anchored offshore waiting for clarity on safe passage. And that forced one major UAE re-roller to shut the galvanizing line because all of its HRC feedstock was imported, and none of it could enter through Hormuz. And many producers across the region have now announced output cuts, but one of the most significant disruptions came from Bahrain, where the Foulath Group, which owns Bahrain Steel and SULB, declared a first measure. And Bahrain Steel supplies around 12 million tonnes per year of iron ore pellets, which are essential for DRI and AIF operations across Bahrain and Saudi Arabia. And SULB produces medium and heavy beams and other structural sections that are crucial for construction industry.
And meantime in Iran, two major steel sites were hit. Khouzestan Steel suffered damage to storage silos, while Mobarakeh Steel, which produced more than 7.5 million tonnes of slab in the latest Iranian year, sustained hits to substations, alloy lines, and parts of its DRI and power unit. Foolad Atieh had been stuck earlier, resulting in casualties and a full operational halt. And I heard last night that Mobarakeh was hit again, which only deepens the uncertainty on Iranian slab availability going into April.
Lora: Okay, so the impact is on steel, on iron ore pellet. So, yeah, it extends across the whole ferrous chain. And as you mentioned, the Gulf area is a large steel-producing hub, and Iran is especially important for semi-finished steel. Can you give us an estimate of the amount of steel exports that are impacted per month from Iran, and also, from the other GCC countries?
Elif: In a typical year, Iran exports just over half a million tonnes of billet and slab per month, and that's based on World Steel's 2024 equivalent. Iran's total steel exports are around 10.5 million tonnes a year, and semi-finished products make up the core of its seaborne trade. If we look at individual producers, Mobarakeh Steel produced about 7.5 million tonnes of slab in the Iranian year that ended on 29th of March last year, and it exported roughly 1.2 million tonnes, so around 100,000 tonnes a month. Khouzestan Steel produced close to 3.8 million tonnes of billet and slab this year, and exported about 1.4 million tonnes, which also works out to a little over 100,000 tonnes a month. And Hormozgan Steel accounts for almost 40% of slab sales on the Iran Mercantile Exchange is another major supplier into export markets.
All of that has now come to a halt. The Hormuz closure stopped shipping, but in the past week production itself has been disrupted as well. Khouzestan's storage silos were hit, Mobarakeh saw sustained damage to substations, alloy lines, and parts of his DRI and power unit, and allegedly, it was hit again last night. and Foolad Atieh remains shot following an earlier strike in casualties. And on top of that the attacks on the south parts gas field have triggered rolling power and gas shortages across Iran, so even mills that were not directly hit are facing massive production constraints. And according to an unconfirmed report we have received last night, traders are expecting temporary export curbs starting from the 4th of April for traders and from 14th of April for mills, which means, even material still technically available, it cannot leave the country. So, effectively, the market has lost the entire Iranian semi-finished export flow, roughly half a million to 600,000 tonnes a month of billet and slab.
Lora: Yeah, very impactful in terms of semi-finished volumes. Undoubtedly, the most impacted steel trade flow. On slab, let's focus on that, Carlo, what impacts have we already seen from the reduced supply from Iran, and how are you seeing other slab suppliers react?
Carlo: Yeah, so thank you for the question. First of all, I think it's important to understand where Iranian slab was going before the outbreak of the war. Iran was exporting about 150,000 tonnes to 200,000 tonnes per month of slab earlier this year before the war broke out, and 70% was going to the South East Asia. These numbers were already on the low side as we know, and civil unrest this past December and the previous 12-day war with Israel had already played a role in reducing slab exports from the country. Despite the 150,000 to 200,000 tonnes not being a significant volume, Iran's absence is undoubtedly weighing on the slab market. And what I have observed is that it's reshaping trade flows, which is further exposing the mismatch between global slab demand and supply.
An example of this is suppliers in South East Asia, they have had to adapt to Iran's absence by redirecting more volumes to their own domestic market. And this has created a domino effect of sorts, which has put international buyers, and we can cite Europeans in this case, under significant pressure. And by the way, even before the war in the Middle East, the slab market was already quite tight with seaborne demand clearly outweighing supply. And we have some mills asking for July-August shipments, operating with extended lead times with absolutely no rush to sell. So, the war exacerbated already existing problems and shifted trade flows leading to price increases on slab.
I think we can also speak about energy costs and freight rates which have already been mentioned. On energy, we know very well that Asian steel mills rely on gas and LNG which comes from the Gulf states. So, they too have suffered the cost crunch. Freight, well, with insurance premiums rocketing, this has further boosted offers on a CFR basis. For example, Tianjin to Genoa freight went from about $40 to nearly $80 after the outbreak of the war. So, all of these factors have led to seaborne slab market to rise so much so that in some cases, HRC is cheaper than slab, imagine that. So, our HRC FOB Tianjin assessment today settled at around $485 FOB, while the last Chinese slab offers I've heard from the market were between $500 to $510 FOB.
Lora: Thanks. And, yeah, we've seen, not just China but Indonesia and other significant slab suppliers increase offers to try to capitalize on the lack of Iranian supply. But how have these increased slab prices and other costs related to the war filtered into the finished flats prices?
Carlo: Yeah, so higher slab prices are putting re-rollers in difficulty and are eating into their margins. Interestingly, I have heard that on heavy plate, on the plate side in Europe, some re-rollers are looking to extend their maintenance this summer due to rising production costs and shortages of slab. To add to that, Europeans are also facing a squeeze in supply from Russia due to high quota utilization. It is expected that Russian suppliers will skip some shipment months to the EU this summer. On top of this the future of Russian slab supply remains uncertain as the EU is currently discussing a melt and pour clause, which would outlaw substrate from Russian Belarus. But anyways, that's a topic for another time.
Higher slab prices have translated into higher flat prices. Let's use the Ex-Works heavy plate assessment in Italy as an example, which is up by €40 since the start of the conflict, or our Northwest plate assessment which has increased by €50 since the start of the war. This has completely stalled demand on the heavy plate side after a small period of panic purchasing. And consumers understand the position of suppliers, but have clearly been spooked by the substantial price increase that we have seen.
And we see a similar phenomenon in Turkey on the HRC side. And I will just close by adding that a lack of viable imports due to risks associated with the conflict in the Middle East has also helped support finished prices. And this is both valid for heavy plate in Europe and HRC in Turkey. With the caveat though that in Europe, you also have to consider CBAM and the upcoming safeguards which are stifling import trade.
Lora: You touched upon buyers being spooked by increasing prices, and that's a very important thing to note, that while the conflict has a direct impact on supply, indirectly, the increase in prices as we've seen during COVID, as we've seen with the war in Ukraine can also have an adverse effect on demand. So, yeah, it's an important thing to keep in mind and track. But undoubtedly, yeah, the impact on the flats market is already quite pronounced. But what about on long-site, Brendan? I mean Iranian billet is a very important feedstock for re-rollers globally. And which regions have been hit the hardest by this lack of billet and what suppliers are benefiting from increased billet demand?
Brendan: Yeah, so as we've already mentioned, Iran is a major steel-producing country, a major exporter of semi-finished steel, around maybe the fourth or fifth largest in the world. Major destinations for Iranian billet are countries in the Gulf such as Oman and Kuwait, as well as Turkey, Indonesia. Immediately after the war broke out, Chinese suppliers took advantage of the absence of Iranian supply and sold replacement cargos to Southeast Asia. We saw prices go up pretty quick.
The Argus CFR ASEAN billet assessment is up by $25 since the outbreak of the war at $480 now. Freight rates for steel for billet have increased, at least, $10 to $15 per tonne on most routes. That doesn't include the hefty insurance premiums that we've seen for shipments into the Gulf recently. So, yeah, the higher freight rates along with the absence of Iranian supply is pushing up CFR prices while, of course, globally, the strain on energy supply is pushing up prices for everything, and certainly, for steel.
Turkey buys Iranian billet, particularly mills in the country's south, but they also rely heavily on Asian billet as a means of offsetting the costs of their major feedstock which is scrap. And so, with freight rates jumping right after the war broke out, this paused trade for a while. This of course, pushed scrap prices higher as mills scrambled for feedstock. So, our CFR Turkey assessment for scrap is at just under $400 per tonne, $397.50 as of yesterday having stood at around $375 for the whole of January and February. So, there's a real jump in costs and this has, obviously, been reflected in the finished products market as I'll touch on in a bit.
But buyers returned for Asian billet last week, Turkish buyers as well as GCC buyers. Chinese and Indonesian cargos were sold to Turkey and to Oman, and most notably, to the UAE, which of course, will involve transit via the Strait of Hormuz, and it seems that some buyers there might be taking a bet on the war being over or on, at least, being able to take material into the Gulf.
Lora: So, it sounds, on billet, that China has been able to capitalize on the lack of Iranian supply. And you also touched upon electricity and gas costs. So, let's talk about those producers that are not necessarily getting crushed by the actual lack of Iranian steel supply, but instead, by energy costs, and I guess, specifically, the EIFs. How are they reacting to the increase in energy prices?
Brendan: Yes, well, in particular in the EU where access to Russian gas supply is restricted, fuel and energy price have gone up very sharply. And this, of course, has a very strong effect, as you say, on the long steel market which is mostly supplied by electric arc furnaces. Argus's TTF front month index has been above €50 since the war started, at one point, peaking above €60, having hovered at just above €30 in February. Mills have of course reacted by raising prices. Our weekly Italy rebar assessment is up almost €70 at 630 Ex-Works, and is likely to have gained another €10 this week. The German market we assess monthly, but traded prices are up by roughly €40.
Trade is all very short term. Mills are not willing to allocate too much to the market because it is likely that energy costs will be higher over the coming weeks. So, they're not willing to sell more than, or much more than two weeks ahead. Buyers also on the other side aren't willing to take too much material at these higher prices as there's a certain possibility that the war could end in the near future. The messaging from the White House is, obviously, very unclear on that. And gas and oil prices have been very quick to respond and when there's a hint that the war might end sooner they fall a bit. And so, buyers don't want to commit too much at higher levels.
Lora: Yeah, I mean, to recap, what we're seeing in the steel market is a mix of shorter and longer-term impacts with, as you mentioned Brendan, energy prices, but also, freight costs, logistics, transit issues likely to ease very quickly once or when the war ends. I mean we've seen today Trump saying that it will be another two to three weeks, but who knows if that's going to be the reality. But what's particularly more impactful longer-term is, of course, the strikes last week on the plants in Iran. And these could create a, potentially, longer-term and structural issue for supply depending on the actual severity and, of course, the further escalation of the conflict. I think this is all we will have time for today. But thank you very much to our listeners and to our guests. And if you would like to read our content in full, it's available under the Argus Global Steel report, so contact us for subscriptions. And we look forward to seeing you in our next podcast episode.
