Iran's steel production is unlikely to recover swiftly despite the announcement of a two-week ceasefire between the US and Iran late on Tuesday that could bring relief from higher energy prices and potentially enable shipping to resume through the strait of Hormuz.
Damage to major Iranian steel producers Mobarakeh Steel and Khuzestan Steel after air strikes at the end of March have resulted in the companies halting production because of extensive damage to their plants.
Repairs and the resumption of output is expected to take months, which is likely to tighten the supply of products to the semi-finished steel markets, to which both mills are large suppliers, with a combined production capacity of around 14mn t/yr.
This could in turn keep slab and billet prices elevated — fob Asia slab prices have increased by $24/t since the end of February, while cfr Asean billet prices have risen by $30/t, according to Argus assessments. Iranian prices have also strengthened, with a deal concluding $26/t higher for April shipment compared with March-shipment prices.
But the ceasefire announcement could bring some production cost relief in the form of lower energy prices, based on initial market reaction. European gas prices plunged at market opening on Wednesday, with front-month futures at Europe's benchmark Dutch TTF hub nearly 20pc lower, while the front-month Ice June Brent crude contract fell by around 16pc. Lower crude prices weighing on fuel oil markets and the prospect of shipping through the strait of Hormuz resuming could also benefit producers and exporters by pulling freight rates lower.
Some steel producers in Asia and Europe, particularly of long products, raised prices throughout March because of higher energy costs, while a number of seaborne suppliers increased offers on a cfr basis to account for surging freight and logistics costs.
The ceasefire has had no immediate impact on steel prices today, some traders said, but others noted that the euro strengthening against the US dollar has affected import prices — an offer at $700/t cfr would work out around €10/t lower at today's rate compared with the end of last week. "The risk [for Hormuz] to remain blocked is still too high if the ceasefire will be interrupted. So I guess shipowners will not accept cargoes from the Gulf," a trader said.
