Domestic Economy

Cement Exporters Get $285m in Transportation Subsidy

Cement Exporters Get $285m  in Transportation SubsidyCement Exporters Get $285m  in Transportation Subsidy

The government has allocated $285.7 million to pay transportation subsidies to help domestic cement producers embark on new export destinations such as Africa, the deputy head of the Cement Employers Association said.

"The subsidy will enable cement producers to have a competitive edge in new overseas markets," Morteza Lotfi was also quoted as saying by IRNA, noting that the cost of transportation to Africa would make up over 40% of the final price of cement sold there.

According to Lotfi, the subsidy could substantially increase cement exports to 35 million tons per year from the current 15 million tons.

The Islamic Republic of Iran Shipping Lines and Islamic Republic of Iran Railways will be the main beneficiaries of the new incentive.

Several agreements with African countries have been signed and two cargos have already been exported to Tanzania and Egypt.

The cement exporters' shift to African markets comes against a background of diminished sales to Iraq. For years, the western neighbor was the main export destination for Iranian cement and clinker–the raw material used in the first stage of cement manufacturing.

The neighboring country once used to account for nearly 65% of Iran's overseas cement shipments. However, since 2015, the rise of the self-styled Islamic State terrorist group in Iraq and falling oil prices reduced demand for cement.

In April, the Iraqi government banned cement imports to support its domestic producers. Although talks are underway with Iraqi officials to lift the ban, diversifying export markets is an existential need for Iran's strategic cement industry.

According to Lotfi, Iranian cement factories currently operate at half their 80-million-ton annual production capacity.

Domestic demand for cement is also in slump, amid the slowdown in construction.

Before the ongoing slump hit, Iranian cement producers experienced a seven-year boom owing to the ill-famed Mehr Housing Scheme–a large-scale construction program initiated in 2007 by the previous administration to provide two million low-income people with housing units through free land and cheap credit.

The plan, however, slowed down due to lack of funding, which dragged down domestic demand for construction materials. Cement manufacturers were forced to turn to exports to make use of the increased production capacities developed during the boom years.

The 2015 output stood at 58.6 million tons, down 12% from the year before, according to CEA data.

Last year, exports were also hit, falling by 20% compared to the prior year.

The domestic cement industry's capacity expansion trend came to a halt in 2015 for the first time in more than 15 years, as it stayed put at 79.7 million tons per year.

Plummeting production led to a fall in Iran's global ranking as the country stood three steps lower in 2015 from the previous year's fourth position among top cement producers. However, Iran remains the world's top exporter.

As per the objectives set in the 20-Year National Vision Plan, Iran's cement production is to grow 60% to reach 120 million tons per year by the end of 2025.

The industry is also planning to increase exports by 68% over the next decade to 32 million tons per annum.