In this article, the value of Iran's steel industry is examined from the perspective of economic and material flow analysis to provide a holistic and accurate view of the steel industry and its dynamic components. Accordingly, the policymakers can design appropriate policies and interventions to improve the chain by the recognition of production bottlenecks and consequently, the roots of chain inefficiency. In this regard, the inaccuracy of information in the material flow analysis is partially solved by the concurrent usage of value chain analysis as the data is collected by different organizations for diverse purposes. Thus the simultaneous use of the aforementioned information validates the research results; although the researchers have also attempted to use more than one source for the required data as well. According to the findings of the research, the following results is inferred:
1) The production costs of the intermediate products before steel are all cheaper than their imported prices, and in this regard, Iran has a competitive advantage of cheaper raw materials in the upper chains of the value chain. According to the significant share of shipping in final costs of the industry, the advantage is due to the easy access to the products. Despite Iran's advantage in the early stages of the chain, the final price of domestic production of steel is higher than the price of the imported steel, which indicates an increase in the share of overhead costs due to the production in low-capacity. Surprisingly, the difference between nominal capacity and actual production in different links in the chain is not much dependent on market demand or the excess/lack of capacity of the link. For example, although there was a lack of pellet production capacity in the last three years, the actual production of the pelletizing plants was less than their nominal capacity.
2) Weakness in transportation as one of the reasons for deviating from the nominal capacity, especially in the upstream echelons of the industry is due to the ignorance of the geographical proximity of iron ore processing plants to consumer plants on one hand, and the high volume of company-to-company exchanges in upstream industries which is Noncompliance with the transportation capacity. Accordingly, as an example, part of the country's iron ore processing capacity in the Sangan region has remained unused as a result of the difficulty in the transportation of its products.
3) The difference between nominal capacity and actual production in different echelons does not have a specific dependence on the added value of production in that echelon. For example, between 2014 and 2015, although the difference in added value in the smelting sector was very high, the productivity of the smelters was not much different. Also in 2016, the added value in the smelting sector has almost quadrupled compared to 2015, but the actual production of crude steel in these two years was 11 and 7 million tons less than its nominal capacity, respectively.
4) Despite the reduction of production costs in 2015 compared to 2014, the profit of the steel industry decreased in 2015. Also, the smelting sector went through a difficult fiscal year with a sharp decline in profitability and probably relied on government support to cover its costs.
5) Although the share of profits of the upstream links in the value chain has not fluctuated much over time, the share of downstream profits is dependent on the final price. Indeed, the fluctuations in final price may lead to a lack of advantage in downstream industries, but upstream industries have a permanent advantage. Therefore, easy access to the minerals, lower transportation costs, and national advantages in energy costs provide a competitive advantage in the upstream industries.
6) Due to the bottleneck of the pelletizing and the lack of capacity for the exploitation of surplus iron ore and production concentrate, miners and iron ore processing plants are forced to export iron ore and concentrate with the lowest added value. In other words, the low productivity and the gap between actual production and nominal capacity in pellet production have led to the reduction of the generated added value of 12, 30, and 240 million dollars in 2014-2016, respectively.
7) The profit margin of iron ore processing companies is significantly higher comparing to the reduction and smelting sectors due to the export of granulated iron ore and low required investments. As a result, Iran has invested deeply in the sector without moving towards further exploitation of these mineral assets.
8) Given the vacant capacity in different links of the chain, there is a great opportunity for wage conversion or commodity purification contracts to reduce the share of overhead costs in production. Accordingly, the sponge iron factories for example could increase their average added up to 8% in 2016.
9) Pricing of intermediate products based on a ratio of steel ingot prices seems to be a failed policy as the added value is not evenly distributed throughout the chain. For example, although the total profit of the iron ore processing plants has been relatively constant in the last three years, the profit in the smelting and reduction sectors has varied according to the final price of steel.
10) Iran's steel industry has suffered from severe value chain imbalances in the past few years. Due to the difference in actual production and nominal capacity in each part of the value chain, the amount of need or surplus in each link of the chain is different from what is determined based on the nominal capacity, and this difference has led to frequent imports and exports throughout the value chain. For example, Iran has imported more than 1 million tons of pellets and exported more than 13 million tons of iron ore and iron concentrate in 2015.
As mentioned earlier, the study of Iran's steel industry in 2017 - 2020 requires attention to the intensification of international sanctions on Iran. Therefore, for future research, it is suggested to analyze the value chain of Iran's steel industry in this period with a similar approach, and then compare the results with this research to evaluate the impact of the sanctions on this industry. Also, the findings of the present study can be further investigated by the analysis of the effects of the identified challenges in the value chain of Iran's steel industry (such as the inappropriate geographical dispersion of the chain components, the deviation from nominal production capacity, and the imbalance in the development of industry value chain). Finally, considering the use of alternative technologies in the steel industry of most countries, the scholars can analyze the steel value chain in other contexts and then compare the added value of different steel production technologies.