The Purchasing Managers’ Index for Iran’s industrial sector rose for the second month in a row in the last fiscal year’s 12th month (Feb. 20-March 20, 2022), new data released by the Statistics and Economic Analysis Center of Iran Chamber of Commerce, Industries, Mines and Agriculture show.
The PMI for the month under review settled at 56.43 from 51.5 in the preceding month (Jan. 21-Feb. 19), indicating a 9.57% rise.
Locally known by its Farsi acronym Shamekh, PMI is an indicator of economic health for manufacturing and services sectors. It provides information about current business conditions to companies’ decision-makers, analysts and purchasing managers.
The headline PMI is a number from 0 to 100. A PMI above 50 represents an expansion compared with the previous month. A PMI reading under 50 represents a contraction and a reading of 50 indicates no change. The further away from 50, the greater the level of change.
PMI is based on a monthly survey sent to senior executives of more than 400 companies. It is based on five major survey areas: new orders (30%), raw material inventory (10%), production (25%), supplier deliveries (15%) and employment (20%).
The survey poses 12 questions about business conditions and any changes, whether it is improving, no changes or deteriorating.
"Wood, paper and furniture" posted the highest PMI with a reading of 69.82 during the month under review while "rubber and plastic" registered the lowest PMI of 44.06.
Notably, the “employment" was the only sub-index registered below the 50 mark.
In general, during Feb. 20-March 20, the employment index declined in most fields of activities.
On the other hand, with the increase in production costs (salaries, energy prices, equipment, etc.), producers are forced to lay off their workers to compensate for the rising costs.
Many manufacturers face difficulties and cumbersome regulations when it comes to import order registration and export process.
Main Problems Facing Businesses
The main problems from the viewpoint of the surveyed businesses in the 12th month of the fiscal 2021-22 include:
- Despite the increase in the purchasing price of raw materials, parts, fuel and wages, producers have not yet been allowed to increase their end prices. If this trend continues, some manufacturers will have to lay off workers or even close production lines to reduce costs. (non-metallic mineral industries)
- Lack of access to the SWIFT (Society for Worldwide Interbank Financial Telecommunications) banking system and complications in international transfers have significantly increased risks for exporting manufacturers. In many cases, they are paid their dues with delays in rials. Considering that they are required by law to repatriate their export earnings in foreign currencies, which they have to supply at market rates amid volatility, they suffer financial losses. (non-metallic mineral industries)
- Due to the abolition of subsidized currency for many industries, many producers face difficulties in getting banking facilities for importing raw materials. (rubber and plastic)
- The rise in global prices of wheat following the conflict between Russia and Ukraine has caused a sharp increase in prices of this staple grain. On the other hand, drought has affected domestic wheat production. Suppliers of this product need banking facilities due to the sharp rise in price. (food industry)
- Rising prices of raw materials, especially in Iran Mercantile Exchange, has made it difficult for producers to supply materials. (chemical industry)
Five Main Sub-Indices
The "production" sub-index for Iran’s industrial sector increased from 58.84 in the fiscal 2021-22’s 10th month (Dec. 21-Jan. 20) to 51.43 in the 11th month (Jan. 21-Feb. 19) and grew to 50.57 in the 12th month.
Industries classified as "wood, paper and furniture" recorded the highest PMI of the production sector (78.57) while "rubber and plastic" registered the lowest PMI with a reading of 37.5.
The "new orders" sub-index grew from 50.54 in the month ending Jan. 20 to 50.57 in the month ending Feb. 19 and increased to 48.83 in the month ending March 20, with the top-performing industries being "wood, paper and furniture" (75) and the worst being "non-metallic mineral industries", “others” and clothing and leather (each with 50).
The "supplier deliveries" sub-index, which measures how fast deliveries are made, increased from 57.5 in the month ending Jan. 20 to 59.84 in the month ending Feb. 19 and grew to 65.14 in the month ending March 20.
The highest supplier deliveries PMI was posted by "wood, paper and furniture" with a reading of 75 and the lowest was recorded for "rubber and plastic" with a reading of 43.75.
The "raw material inventory" sub-index increased from 46.21 in the month ending Jan. 20 to 48.86 in the month ending Feb. 19 and grew to 48.86 in the month ending March 20.
"Wood, paper and furniture" posted the highest PMI with 71.43 while "clothing and leather" registered the lowest PMI reading of 37.5 among all groups.
The PMI reading of "employment" sub-index declined to stand below the threshold. It decreased from 54.79 in the month ending Jan. 20 to 51.75 in the month ending Feb. 19 and decreased to 46.61 in the month ending March 20.
Industries classified as "machine producers and home appliances" posted the highest PMI reading (54.17) whereas "rubber and plastic" posted the lowest PMI with 37.5.
Seven Secondary Criteria
To calculate PMI, seven secondary criteria were also surveyed by the center, namely "raw material purchase prices", "warehouse inventory", "exports", "product price", "fuel consumption", "sales" and "production expectations".
The "raw material purchase prices" sub-index decreased from 75.91 in the month ending Jan. 20 to 73.48 in the month ending Feb. 19, but increased to 75.48 in the month ending March 20.
All 12 groups registered PMI readings higher than 50 for "raw material purchase price" sub-index in the 12th fiscal month of last year. The highest PMI was recorded for "petroleum and gas products” with a reading of 86.84 and the lowest for industries categorized as "clothing and leather" with 56.25.
The "warehouse inventory" sub-index increased from 53. 14 in the month ending Jan. 20 to 53.8 in the month ending Feb. 19, but declined to 42.51 in the month ending March 20.
The lowest PMI reading for "warehouse inventory" sub-index was recorded for "textile industries" with 5.56 and the highest was registered for "non-metallic mineral industries" with 55.
The "exports" sub-index increased from 49.43 in the month ending Jan. 20 to 51.86 in the month ending Feb. 19 and grew to 53.02 in the month ending March 20.
PMI reading of "exports" sub-index was the highest for "food industries" (64) and lowest for industries categorized as "petroleum and gas products" (34.21).
The "prices of manufactured products" sub-index decreased from 57.55 in the month ending Jan. 20 to 49.53 in the month ending Feb. 19, but grew to 58.37 in the month ending March 20.
"Petroleum and gas products" recorded the highest PMI of 81.58 during the period while industries classified as " textile industries", " non-metallic mineral industries "and “others” posted the lowest PMI each with 50.
The "fuel consumption" sub-index decreased from 60.99 in the month ending Jan. 20 to 57.53 in the month ending Feb. 19 and declined to 53.05 in the month ending March 20.
Industries categorized as "machine producers and home appliances" registered the highest PMI measured for "fuel consumption" (64.58) while “vehicles and related components" registered the lowest (45).
The "sales" sub-index increased from 45.63 in the 10th month of fiscal 2021-22 to 46.63 in the 11th month and grew to 59.69 in the 12th month.
“Vehicles and related components” posted the highest sales PMI with a reading of 82.14 while “non-metallic mineral industries”, “rubber and plastic”, “clothing and leather” and “others” registered the lowest PMI each with a reading of 50.
The "production forecasts for the following month" sub-index decreased from 62.05 in the month ending Jan. 20 to 61.41 in the month ending Feb. 19 and declined to 34.8 in the month ending March 20. Its sub-index "non-metallic mineral industries" registered the highest PMI reading of 55 and "wood, paper and furniture" the lowest PMI reading of 10.71.
PMI, among the most precise indicators showcasing a country’s economic condition, was first devised by the Institute for Supply Management in the United States in 1948. It is calculated as (P1 * 1) + (P2 * 0.5) + (P3 * 0) where P1 is the percentage of answers reporting an improvement, P2 is percentage of answers reporting no change and P3 is percentage of answers reporting a deterioration.
