The removal of western sanctions imposed on Iran over its nuclear program, as part of the July 14 nuclear deal reached with six major world powers, held much promise for the Iranian cement producers who anticipated gaining access to new markets for exports to offset the dwindling demand at home.
However, problems facing the cement industry’s path to growth in the post-sanctions era appear to be intractable.
The Ministry of Industries, Mining and Trade also planned big for the cement industry. Its Strategic Plan, Iran’s most comprehensive industrial development plan in at least 15 years, was announced last August by the ministry.
According to the plan, cement output is to grow 60% and reach 120 million tons per year by the end of 2025T the industry is set to increase overseas sales by 68% over the next decade to 32 million tons per annum. In fact, the plan indicates that Iran will be able to export 21 million tons a year by 2017.
However, cement and clinker production has been declining steadily. Iranians produced 49.6 million tons of cement and 52.7 million tons of clinker–the main raw material used for cement production–during the 10 months of the previous Iranian year (March 2015-16), indicating a decline of 11.8% and 13.9% year-on-year.
Cement and clinker exports also took a hit, standing at 8.8 million and 4.2 million tons during the same period, falling by 18.4% and 17.4%, according to data from Iranian Cement Employers Association.
Experts believe that waning demand in the construction sector, coupled with the government’s lower oil revenues and the hike in raw material procurement costs have hindered the industry’s path to growth in the domestic market.
Cement producers had experienced a nearly seven-year-long boom because of the 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 credits.
The plan, however, slowed down due to lack of funding and dragged down the domestic demand for construction materials. In response, cement manufacturers turned to exports to make use of the considerable production capacities developed during the boom years.
However, regional demand for Iranian cement has been depressed as oil prices collapsed, causing budget and infrastructure cutbacks in some of Iran’s main cement trade partners, namely Iraq, the UAE, Azerbaijan and Saudi Arabia.
Iraqi Ban Adds Insult to Injury
In a grim finale for the Iranian cement producers and exporters’ months-long struggle to maintain exports to Iraq, which accounted for 65% of Iranian cement sales overseas, the Iraqi Cabinet banned the import of foreign cement on Tuesday to support domestic producers, IRNA reported.
Ever since early 2015, Baghdad turned out to be a difficult partner for Iranian cement exporters. Amid the challenges posed by the assault of militants on Iraq and the consequent difficulties in goods’ transportation, Baghdad slapped an import tariff of $20 per ton on Iranian cement to support its domestic producers.
Following the plan to bolster its industry, Iraq started importing clinker, the material used in the first stage of cement manufacturing, at cheap rates from Iran. This led to an unprecedented rise in clinker production capacity last year, which led to overcapacity after Iraqi demand waned gradually.
Currently, close to 20 million tons of clinker are stored in warehouses with no demand, according to Abdolreza Sheikhan, head of Iran’s Cement Employers Association.
There was more trouble on another front. Back in January, a 1,000-ton shipment of white Portland cement destined for Saudi Arabia was returned midway, amid tension over the Saudi execution of Shia cleric Sheikh Nimr al-Nimr, which also led to a group of Saudi allies cutting ties with Iran.
The failed shipment, while negligible on its own, meant a loss of another cement and clinker export destination for Iran.
According to Sheikhan, the Persian Gulf littoral states are Iran’s primary clinker export destinations and the severance of ties with them will negatively impact the industry.
“Nonetheless, we are eying clinker and white cement exports to Tanzania and Egypt as alternative markets,” he said.
With an annual cement production capacity of about 80 million tons, Iran is ranked among leading cement producers and exporters.
