The preliminary deal was signed between Iran's Pars Kohan Diarparsian Steel (PKP) and POSCO, the South Korean company said in statement on Monday, Reuters reported.
According to the terms of the agreement, POSCO, the world's sixth-biggest steel producer, and its affiliates plan to take 8 percent of the project to build the 1.6 million-ton steel plant in cooperation with PKP in the southeastern port city of Chabahar.
A POSCO spokesman said the company aims to break ground on the plant next year, with a plan to add facilities producing cold-rolled and galvanized steel in 2019.
As part of the deal, POSCO plans to transfer to Iran its FINEX technology, which it says is more environmentally-friendly and cost-efficient than standard steelmaking methods.
Chabahar is the closest and best access point of Iran to the Indian Ocean and Iran has devised serious plans to turn it into a transit hub for immediate access to markets in the northern part of the Indian Ocean and the Central Asia.