US-Iran agreement could ease energy and freight costs for steel sector

– A preliminary memorandum of understanding (MoU) between the United States and Iran could help reduce energy and transport costs for steelmakers and steel buyers, according to a new analysis by MEPS International.

The agreement, signed on June 17, ended hostilities between the two countries and provides a 60-day period to negotiate a binding peace treaty. Under the MoU, Iran has committed to ensuring toll-free passage through the Strait of Hormuz for commercial vessels for at least 60 days, with full restoration of shipping traffic expected within 30 days.

The Strait of Hormuz was closed on February 28, disrupting a route that handles nearly 30 million tonnes of dry bulk cargo per month and around 20% of global oil and LNG shipments. Expectations that shipping will remain open have already weighed on energy prices. Brent crude, which exceeded USD 114 per barrel in early May, fell below USD 79 per barrel by mid-June.

Freight costs remain elevated

According to MEPS, lower oil prices could provide relief to steel market participants worldwide. Steel buyers in North America and Europe have reported rising transport costs in recent months, driven by higher fuel prices, driver shortages and infrastructure constraints.

In the United States, freight expenditures increased by 7.5% year-on-year in May, following a 3.5% rise in April, based on the Cass Freight Index. European buyers told MEPS that road haulage costs have increased by EUR 20-30 per tonne, while rail network upgrades in Germany have further reduced transport capacity.

MEPS notes that these developments have contributed to slower procurement activity in Central Europe and reduced the competitiveness of suppliers from Southern Europe.

Potential boost for steel trade

The research group also suggests that lower shipping rates could improve export opportunities for Asian steelmakers by making material more competitive in the U.S. and European markets. In the United States, imports of flat and long products exceeded one million tonnes in May, despite the introduction of 50% Section 232 tariffs.

However, MEPS cautions that a rapid decline in shipping costs is not guaranteed. Insurance premiums for vessels transiting the Strait of Hormuz remain elevated, and concerns persist over sea mines and the possibility that Iran could introduce transit fees in the future.

According to MEPS, a lasting peace agreement in the Middle East could nevertheless provide welcome relief for steelmakers, particularly in Europe, where producers continue to struggle with high energy and raw material costs amid subdued demand.

Source: MEPS, Photo: Fotolia