Iran’s consumption of flat steel is expected to increase rapidly as a result of an investment contract with a consortium led by French oil and gas company Total SA to develop Iran’s major South Pars Gas Field, S&P Global Platts reported citing comments made by Amirhossein Kaveh, secretary of Iranian Syndicate of Steel Pipe and Profile Manufacturers.

“It is good news for Iranian producers of pipe too,” Kaveh told Platts. "The projects need a huge amount of materials, including steel pipes and we have enough capacity to supply their requirements, which will reduce costs considerably," he added.

Kaveh noted that the syndicate had not yet negotiated with Total but that Iranian suppliers of pipes had worked successfully with the oil and gas company before sanctions were imposed.

In the late 1990s, Total sourced pipe project requirements, including sour gas piping, from Iranian mills.

“Most Iranian pipe mills are designed to supply the oil and gas sectors. Our cooperation with Total started from the first phase of South Pars Gas Field development projects. Now Iran’s pipe mills are better performers, supplying some of Turkmenistan’s gas pipeline projects,” he said.

The strategic contract was signed between the National Iranian Oil Company and a consortium comprising Total, China’s CNPC International and Iran’s Petropars Company last week. More than $54 billion worth of natural gas and natural gas condensate will be produced by the project, Shana reported.

The Total-CNPC-Petropars deal is considered the first important international contract to have been signed in Iran’s energy sector, but is not expected to be the last.

Iran needs some $200 billion for financing oil and gas projects under the country’s sixth five-year development plan (2017-22), according to Iranian Oil Minister Bijan Namdar Zanganeh.

Iran and Total are also close to another deal for $2 billion investment in the country’s petrochemical sector.

According to Iranian Steel Producers Association, Iran produced more than 10 million tons of flat steel products during the last fiscal year (March 2016-17). Hot-rolled coil accounted for 6.98 million tons of the total output, relatively unchanged compared to the year before; cold-rolled coil production stood at 1.91 million tons, up 9% year-over-year; and coated coil output was 1.1 million tons, up 20% YOY.

HRC consumption during the same period stood at 7.57 million tons, down 5% YOY. Consumption of CRC and coated coil stood at 2.38 million tons and 4.2 million tons, up 1% and 8% respectively YOY.

Last year’s HRC exports were down 30% to 1.06 million tons, CRC shipments were up 91% to 153,000 tons, coated coil sales inched up 8% to 28,000 tons compared to the preceding year.

HRC imports during the same period were down 36% to 1.65 million tons, CRC was down 9% to 617,000 tons and coated coil dropped 16% YOY to 350,000 tons.

With Iran’s largest flat producer Mobarakeh Steel Company prioritizing the local market and moving to boost output, the syndicate’s 136 members will most likely have a lot of flat products at their disposal for a potential deal with Total.

Together with its subsidiaries, Isfahan-based MSC is the largest flat steel producer in the Middle East and North Africa region and Iran’s largest steelmaker, accounting for 1% of Iran’s GDP.

Since MSC was founded in the early 90s, it has supplied about 80% of its total output to the domestic market. The company accounts for approximately 50% of Iran's total steel output and holds around the same share from domestic flat steel consumption.

MSC undertook several expansion plans in 2016, including a $143.4 million investment in setting up a continuous casting machine back in November. The new production line added 1.8 million tons to MSC’s annual steel production capacity and increased it to 10.3 million.

The company has gradually cut down on its exports during the past few months while boosting production and supply to the local market, losing its place as Iran’s top exporter to Khouzestan Steel Company in the process.

In fact, the main reason behind MSC’s changing attitude was a dispute with the pipe manufacturers association last year. The syndicate accused MSC of refusing to provide pipe producers with their needed feedstock of flat steel, overcharging local buyers and prioritizing exports.

The dispute dragged on for months with some other consumers voicing the same complaint, until the Ministry of Industries, Mining and Trade officially ordered MSC to shift its focus to the local market.