Economy, Domestic Economy

Revisiting Iraq’s Lucrative Cement Market

Revisiting Iraq’s Lucrative Cement MarketRevisiting Iraq’s Lucrative Cement Market

Iran is in talks with Iraq to reach an agreement whereby Iraqi cement producers can supply the construction material to the Syrian market while Iran meets local demand in Iraq, the head of Iran Cement Employers Association said.

Alireza Sheikhan added that Syria’s changing political landscape is increasingly expected to boost demand for building materials in the country.

For years, Iraq was the main export destination of Iranian cement and clinker–the raw material used in the first stage of cement manufacturing. The neighboring country used to account for nearly 65% of Iran’s overseas cement shipments. However, since 2015, the rise of IS terrorist group in Iraq and collapsing oil prices reduced demand for cement.

In April, the Iraqi government banned cement imports to support its domestic producers.

Sheikhan is positive that the ban is going to be lifted by the end of July.

However, diversifying export markets is an existential need for Iran’s strategic cement industry.

According to deputy head of ICEA, Morteza 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 current crisis hit, Iranian cement producers experienced a seven-year boom owing to the bedeviled 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 considerable production capacities developed during the boom years.

Now the Management and Planning Organization of Iran–the body responsible for preparing the country’s budget–has agreed to provide exporters of goods with high transportation costs such as cement, with subsidies to the tune of 10 trillion rials ($285.7 million).

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

Cement production has been on a downward trend in recent 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 20% compared to the prior year.

Furthermore, 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.

The 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.

The Ministry of Industries, Mining and Trade has big plans for the sector. Its Strategic Plan, Iran’s most comprehensive industry-development plan in at least 15 years, was announced last August by the ministry. It stipulates cement output to grow 60% to reach 120 million tons per year by the end of 2025.

As per the schedule, the cement industry is required to increase exports by 68% over the next decade to 32 million tons per annum. The plan envisions that Iran will be able to annually export 21 million tons of cement by 2017.