Can Iran's Return To Metals Markets Move Prices?

by: MetalMiner

Original post

By Stuart Burns

By next week, Iran is likely to declare its "Implementation Day."

With so much else grabbing the headlines, it could pass largely unnoticed, but that would be a mistake. The day is meant to signify when Iran is deemed to have complied with all its obligations in dismantling those parts of its nuclear program intended to produce a nuclear bomb. As The Economist explains, all nuclear-related sanctions, including the freezing of $100 billion of Iranian assets, will be lifted, assuming full ratification by the Iranian parliament of safeguard agreements given to the International Atomic Energy Agency.

One obvious benefit will be the release of Iranian oil exports, expected to gradually ramp up from the current levels of about 1.1 million barrels per day by an additional 500,000 bpd within months. But the wider economy, particularly the metals and mining sector could be a major beneficiary in the medium term.

Economic Potential

As the Economist reminds us, the prospects in a post-deal Iran are vast. It is the world's 18th largest economy. The population of 80 million is well educated. The country's oil and gas reserves are huge. The Tehran stock exchange is the second biggest in the Middle East - with a capitalization of about $150 billion - but at the end of 2014, foreigners owned only 0.1% of listed companies' shares compared with 50% on Turkey's main exchange in Istanbul.

red-hot molten steel in a iron and steel enterprise production scene

Iran could be a major steel exporter once sanctions are removed.

Source: Adobe Stock/Inzyx

In the metals sector, the state owns 90% of all mines and related large industries, but the country desperately needs foreign investment and the know-how. Iran is already a relatively large producer of iron ore, but a combination of rising domestic demand and low global iron ore prices have severely curtailed exports.

The country once was, and retains the potential to easily reclaim it, in a position as the second-largest steel producer in the Middle East, with a large domestic market and the potential for prolonged and extensive infrastructure investment. The depressed state of the global steel market wouldn't even provide a disincentive to the expansion of domestic steel production there.

Rich in Metals

Not as readily appreciated is the fact that Iran has the potential to be a significant metals exporter. The country has 5% of the world's zinc and lead reserves and the world's second largest lode of copper at Sarcheshmeh in Kernan province, producing both copper concentrates and cathodes.

Iran has bauxite, produces alumina and is a significant producer of aluminum, although the industry needs upgrades to the latest technology, but the largest producer Iralco is a London Metal Exchange-registered brand for primary ingot and the only Iranian base metals producer to so qualify thus far.

Although Iran has estimated coal reserves of some 50 billion metric tons under investment and low global prices mean it has been a net importer in recent years, it has the potential to more than meet the domestic demand for both thermal and coking coal with appropriate investment.

The potential is, therefore, considerable, both for the economy and for western firms to invest and develop the metals industry after the removal of sanctions. Indeed, nothing is likely to ensure Iran's compliance and return to the international fold more readily than an integration of its economy with the global community and the tangible rise in living standards for its population that would ensue.