LONDON/MOSCOW, Feb 9 (Reuters) - Steel exports to Iran, one of the world's top importers of billet used in construction, are grinding to a halt as crippling U.S.-led sanctions have left local buyers without access to major currencies, traders said.
"Iran is the only market in the world that can move billet prices and now trading has basically come to a halt," a steel trader based in Britain said.
New U.S. and EU financial sanctions imposed since the beginning of this year to punish Tehran over its nuclear programme are playing havoc with Iran's ability to buy imports and receive payment for its oil exports, commodities traders said this week.
Iranian buyers cannot obtain dollars or euros, forcing them to offer letters of credit in alternative currencies such as the Indian rupee, Korean won and Russian roubles.
Most steel traders, wary of currency risk and taxation issues, are not willing to accept this form of payment.
"Now you can really feel the effects of the sanctions imposed by the U.S. and Europe...It is very difficult to do any business with Iran at the moment," a steel trader at a Swiss metals trading house said.
Thanks to large-scale building programmes in the last few years, Iran has become one of the top importers of steel billet, a semi-finished long steel product mainly used for construction.
The country imported over 3 million tonnes of semi-finished steel products in 2010 and almost 2 million of hot-rolled coil, a steel product used in transport, construction, shipbuilding and energy pipelines, according to data from the International Steel Statistics Bureau.
Boris Krasnojenov, an analyst with Moscow-based Renaissance Capital, said monthly Iran imports from Russia were over 300,000 tonnes for most of last year.
"As far as I know, the situation is much worse. Some say CIS mills cut sales 10 times," he said.
The collapse in Iranian imports is depressing international steel billet prices, which fell by about $50 a tonne in a month to $560 a tonne fob Russia and Ukraine this week.
"All volumes from the Caspian Sea will be redirected to the Black Sea," Krasnojenov said. "That is a major problem for Russian steel plants."
Russia sends about 15 percent of its total exports to Iran, making it the largest source of foreign steel, but the sanctions are pushing it out of the market.
A RUSSIAN AFFAIR
Traders say accepting payments from Iran in alternative currencies poses serious issues.
"First of all accepting roubles (and) to then convert them, you are exposed to a high currency risk," the first trader said.
"The only other way to use roubles would be to open a rouble account and buy Russian steel but if you do so you are liable to pay a 20 percent VAT mark-up," the trader said. "Everyone is looking for a way around this at the moment."
"Steel demand is pretty strong, the problem is the banking system," said Dmitry Smolin, metals and mining analyst at URALSIB Capital. "Russian banks do not have trading lines with Iranian banks to facilitate rouble transactions."
Iran's envoy to Moscow said late last month that Iran and Russia had started using their domestic rial and rouble currencies in bilateral trade instead of the U.S. dollar.
However, market players say the dollar shortage is crippling the steel trade.
"Russian producers are not selling to Iran as they need pre-payments and won't accept letters of credit," said a third steel trader at a Swiss-based trading house with a sizeable Russian business.
He said he was looking for ways to overcome the payment obstacles.
"If I find a way to do that I won't tell you," the trader said. "Iran is the king market in steel and if we can find a way to trade with them again we certainly would not share the know-how."