Experts and market analysts paint a promising picture of Iran's mining sector in the coming years following the lifting of western sanctions.
Deputy minister of industries, mining and trade, Jafar Sarghini, believes the sector will be among the first to absorb foreign investment once sanctions, imposed by the US, the EU and the UN Security Council over Iran's nuclear energy program are lifted.
He, however, has warned that cooperation with foreign companies should not lead to higher export of raw minerals.
“Foreign investments should be used for upgrading mining equipment and technology and generating higher value-added in the sector,” he was quoted by IRNA as saying.
A recent report by Business Monitor International predicts that the lifting of sanctions, possibly in early 2016, could make Iran a hub of global mining investment in the coming years.
BMI predicts Iran's mining industry value to grow from $79.4 billion in 2015 to $95.5 billion in 2019. This represents an average growth of 0.5% year-on-year over the period.
Iran is home to 68 minerals and estimated to have more than 37 billion tons of proven reserves and 57 billion tons of potential reserves. These include considerable deposits of coal, iron ore, copper, lead, zinc, chromium, uranium and gold.
According to the United States Geological Survey, Iran holds the world's largest zinc, ninth largest copper, 12th largest iron ore and 10th largest uranium reserves. Overall, Iran holds more than 7% of global mineral reserves.
The 20-year national Vision Plan ending 2025 aims to attract $20 billion into the mining sector to boost production targets across the country.
The 5,400 active mines across the country extracted about 400 million tons of minerals last Iranian year (ended March 20, 2015).The figure is expected to reach 450 million tons this year.
Iran's infrastructure boom is expected to further boost domestic demand for steel and iron ore. BMI forecasts the country's construction industry value to rise from $20.7 billion in 2015 to $41.8 billion in 2024. This represents a solid average year-on-year growth of 2.9% over 2015-24.
> Challenges Ahead
According to BMI, Iran's mining industry growth is hindered by bureaucracy and inefficient business environment, which could limit new investment from entering the country.
Years of mining underinvestment and industry consolidation are also expected to limit the sector's growth over the coming years. As a result of low levels of investment and aging infrastructure, most mining firms operate at just 50-60% capacity.
Furthermore, the protracted lifting of banking sanctions limits investment inflow into the mining sector. It is unclear when the Society for Worldwide Interbank Financial Telecommunication transactions will be unfrozen. SWIFT, which provides the network for the majority of global bank-to-bank transactions, has isolated the Iranian economy, leaving the banking sector virtually cut off from the global financial system. Banks are, therefore, currently unable to undertake international transactions and lend investment capital to firms seeking to expand their presence in Iran.
> Steel Imports Set to Grow
BMI predicts Iran's steel imports to grow in the coming years due to solid growth in the construction sector and the domestic steel sector's inability to meet demand.
The report forecasts Iran's steel output to grow from 17.6 million tons in 2015 to 21.4 million tons in 2019, averaging 5.5% year-on-year growth over 2015-19. However, Iran's steel consumption is predicted to grow from 20.3 million tons in 2015 to 23.1 million tons in 2019, leading to a surge in the country's steel imports. Iran's crude steel balance is expected to post an average total deficit of 9% over 2015-19.
Turkey and the (Persian) Gulf Cooperation Council could largely benefit from Iran's increasing steel demand due to both countries' close proximity to Iran and their solid steel output, according to the report.
