The first phase of a steel production unit came on stream in the town of Bardsir in Iran's southeastern province of Kerman.
Iran's First Vice President Es'haq Jahangiri officially inaugurated the plant on Monday, the Mehr News Agency reported.
The first phase of mill, costing 4.2 trillion rials (about $123.7 million), is projected to produce one million tons of sponge iron per year and create direct jobs for 132 persons.
The second phase is planned to start steel production in the next Iranian calendar year (March 2015-March 2016).
Sponge iron, also called direct-reduced iron, is produced from direct reduction of iron ore (in the form of lumps, pellets, or fines) by a reducing gas produced from natural gas or coal. The direct reduction process is intrinsically more energy efficient than other methods because it operates at a lower temperature.
Iran’s crude steel output hit 15.64 million tons in Iranian calendar year 1392 (March 2013-March 2014), a 9 percent rise compared to the year before.
According to officials, the output is projected to increase to 55 million tons by the end of the Fifth Five-Year Development Plan (2010-2015).
Iran was the biggest producer of crude steel in the Middle East in 2013, according to the World Steel Association (WSA).