* Iran seen years away from steel self-sufficiency
* Further U.S. regulations to tighten steel trade
* Iranian iron ore exports doubled in one year
By Silvia Antonioli and Jonathan Saul
LONDON, May 3 China, Russia and Kazakhstan are
among the few trade allies still providing a lifeline to Iran's
vital steel and iron ore sector after most Western suppliers and
buyers have cut ties due to growing sanctions pressure.
While industry data shows steel imports have more than
halved in the last year, Tehran has kept an inflow from some
partners and slightly boosted domestic production of the
material, used in construction and vehicle production but also
potentially for nuclear use and munitions.
Iran has also doubled exports of the steelmaking raw
ingredient iron ore, worth about $3 billion a year at current
prices. The country does not have enough capacity to use much
more of its ore to produce steel, but exporting it provides
much-needed income now its oil revenues are down by about 50
percent due to sanctions over its disputed nuclear programme.
"This only allows Iran to ease the pain or offset some of
the effects of what is happening because of sanctions. It does
not enable them to overcome the sanctions," said Scott Lucas,
founder of the EA WorldView news site.
"The Iranians are having to go to a shrinking number of
customers to try and look for this increase in exports like iron
ore to compensate for sharp drops in its main product, which is
oil," said Lucas, whose site provides analysis on Iran.
While EU and U.S. bans on specific ferrous products have
pushed most Western players away, fearing repercussions on their
international trade, Chinese interest in Iranian iron ore has
increased, and China has increased steel supplies to Iran.
Top steel producer China is now buying about 2 million
tonnes of Iranian iron ore a month, double the amount it was
buying in early 2012, data from consultancy the International
Steel Statistics Bureau shows.
"The growth in exports is absolutely true ... (The business)
is growing from an infant to a small child," said a spokesman
for the Iran Iron Ore association.
It is not yet a "key form of income at this point", he said,
adding that cash was the primary payment choice.
Market participants, however, say much of the trade now
involves barter and funds deposited in bank accounts in China,
South Korea and other countries that can be exchanged for goods.
TEHRAN'S AMBITIOUS PLANS
Tehran has ambitious plans to expand domestic steel output
and hopes it can in the short term become self-sufficient.
"Iran is in a position to produce more steel domestically;
they have the technology, energy, iron ore to do that," said
Edwin Basson, director general of industry body WorldSteel.
Nevertheless, industry experts say it will take the country
many years to become independent from foreign producers,
especially for semi-finished products such as billet.
"We have enough factories, and they can make anything they
want, but the raw product is often coming from abroad," an
Iranian property developer said by phone.
While some of the finished products he needs such as steel
beams come directly from China and Russia, others are
manufactured by Iranian companies from billets coming from
abroad, he said.
Iran still has to contend with the dragnet of sanctions,
which is cutting supplies of steel. New U.S. regulations coming
into effect on July 1 are set to tighten metals trade with Iran.
Government sources in South Korea said steel exports to Iran
had decreased a lot and would face tougher sanctions.
"Those who continue to do business with Iran will face fewer
competitors for Iranian business and will demand a risk premium
on exports to Iran and a risk discount on imports from Iran. The
net impact will be a continued drain on Iran's foreign currency
reserves," said Mark Dubowitz, who has advised President Barack
Obama's administration and U.S. lawmakers on sanctions.
(Additional reporting by Marcus George in Dubai, Ruby Lian in
Shanghai, Manolo Serapio Jr in Singapore and Meeyoung Cho in
Seoul; Editing by Will Waterman)