Economy, Business And Markets

Challenges & Hopes

Challenges & HopesChallenges & Hopes

Cement is considered as an indicator for development in developing countries since it is a key component of concrete, which is essential to the implementation of infrastructural plans. Despite being the fourth global producer of cement, however, Iran’s cement industry has run into trouble and faces numerous challenges, Donya-e Eqtesad reported.

Currently, the most serious problem faced by cement manufacturers is overproduction, which stems from the downturn in the economy and in the construction sector in particular. Lack of liquidity in capital projects, according to many market experts, is the main reason behind the surplus in cement production. Low demand has pushed producers to offer high discounts to keep business afloat. They now have to, against their will, sell at cheaper prices in order to pay for labor, energy, and spare parts while they have difficulty in covering the production costs, especially the fixed costs.

The contractionary policies pursued by banks have also deteriorated the situation as they are unwilling to grant loans. Therefore, the cement industry has lost its ability to renovate and modernize the production lines considering the fact that the cement industry is among the most energy intensive manufacturing sectors and reducing energy consumption will substantially increase profitability and efficiency.

The stagnation began after the implementation of the so-called Subsidy Reform Plan in 2010, which pushed energy costs higher, making business too costly for industrial plants. The controversial plan partially removed subsidies on energy, causing energy costs to soar in cement factories, which are considered to be among the most inefficient plants in the country in terms of energy consumption.

 Bid to Boost Exports Through IME

The sector, like all other economic sectors in the country, hopes that the nuclear announcement, made by Iran and the major powers in the Swiss city of Lausanne on April 2, will help improve the situation and facilitate international trade and money transactions. But to survive until a possible final nuclear deal in July, cement producers need to balance their books. They are seriously trying to enter the export trading floor of the Iran Mercantile Exchange (IME) since there is no price restriction contrary to the domestic market. Although the domestic trading floors have, on numerous occasions, expressed readiness to admit cement, the cement industry seems to be unwilling to do so, opting for the export trading floor instead. Cement in domestic markets costs 1 million rials per ton, while it is $52 (1.47 million rials based on official currency exchange rate) in the international markets.

“It was first decided that cement be offered on the domestic trade floor in the IME in the current Iranian calendar year (started March 21), but after negotiations with market players and the IME officials, we decided to offer it on the export trading floor of the commodity market,” said the secretary of Iran Cement Producers Association, Abdoreza Sheykhan.

According to Sheykhan, some 18.9 million tons of cement and clinker were exported over the past Iranian year, while 66.4 million tons of cement as well as 70 million tons of clinkers were manufactured during the same period. Iraq, Afghanistan, Pakistan and Africa were the main export destinations.

According to cement market experts, lifting of anti-Iran sanctions could decrease production costs since producers have to buy spare parts through middlemen at higher prices and higher risks. They argue that in the post-sanctions era, the government will be able to speed up development and infrastructural projects, which would considerably increase demand