A monthly survey of senior executives of over 400 companies summarized the main concerns and challenges facing Iranian industrialists in the current fiscal year’s first month (March 21-April 20).
The findings were part of the Purchasing Managers’ Index for Iran’s industrial sector, known by its Farsi acronym Shamekh.
PMI is an indicator of economic health for manufacturing and services sectors. It provides information about current business conditions to companies’ decision-makers, analysts and purchasing managers.
Non-Metallic Mineral Industry
The non-metallic mineral sector shows the increase in governmental duties, transportation costs and wages has hiked the cost of production. Consequently, exports at previous prices is no longer economically feasible and competitive.
All finished steel products have been removed from the list of mineral products on which heavy export duties were imposed recently, following a letter sent by Director General of Mineral Industries Bureau of the Ministry of Industries, Mining and Trade Seifollah Amiri to the ministry’s Export and Import Regulations office.
Export duties on steel slab, clinker, ferrochromium, ferrosilicon and iron ore concentrate have been set at 5%.
Steel billet, iron ore pellet, direct reduced iron, alloy steel (ingot), cement and float glass will be levied 2% while granulated iron ore will be taxed between 5-11%, depending on its iron content, Mehr News Agency reported.
Amiri noted that recent changes in export prices of mineral products has been the reason behind the government’s decision to change export duty rates.
Prior to this decision, the ministry had sent a directive to IRICA on April 9 for export duties on mineral products to be effective in the new fiscal year (started March 21). Customs duties were to be imposed on the export of all products along the steel production chain from iron ore to steel ingots and downstream products, as well as base metals, such as copper, aluminum and zinc from concentrates to the metal and downstream products, petrochemicals, chemicals, glass, clinker, cement and all kinds of ferroalloys.
The rate of the duties was said to be progressive in nature, meaning they increase as the export volume rises. The decision provoked strong criticism among businesspeople active in the field.
“Duties imposed on mineral products is a short-term measure of the government aimed at regulating the domestic market,” Mohammad Sadeq Mofatteh, deputy minister of industries, mining and trade, had said earlier.
“By levying customs duties on exports, supply to the domestic market will increase. We have a chart in the Industries Ministry based on which customs duties will be set on exports when domestic and global price difference exceeds a certain threshold,” he was quoted as saying by IRNA.
The export duties, he added, are subject to change in accordance with global price fluctuations, adding that last week, the duties were reduced because prices in the international market declined.
Amiri noted that the Industries Ministry will set customs duties on mineral products, which will lead to a price increase of 5% or more in the international markets, but those experiencing price rises of between 0-5% will be exempt.
“In setting customs duties, we also take into account the domestic market situation. For some products, the mining industry had no problems supplying the local market so we eliminated the export duties set on them,” he said.
Chemical Industry
The chemical industry owners say the prices of raw materials and packaging (cosmetics and toiletries) have increased while producers are not allowed to raise the prices of their products on the one hand and producer price tag regulation on the other hand have resulted in lower sales.
Minister of Industries, Mining and Trade Reza Fatemi-Amin recently launched the initiative, based on which consumers realize how much more than the cost price they are paying, and this will help increase transparency.
Manufacturers have been required to print the production price, i.e. invoice price, on the products and stores are required to display the selling price, i.e. the price that a consumer pays on the product or on the shelves.
“We have 80,000 items in the market, the production prices of which have been calculated. Sometimes, the gap between the production and selling prices of an item is as much as 100-120%,” the Chamber of Guilds said.
According to ICCIMA, changes introduced in pricing procedure have reduced the number of customers, as enterprises have to provide services at previous prices to retain their customers despite the rise in the cost of equipment, raw materials and transportation.
Rubber, Plastic Industry
Rubber and plastic producers say industries supplying carmakers are faced with recession because of the decline in car manufacturing and purchase of spare parts.
Iran’s vehicle output fell in the year to late March, according to the Ministry of Industries, amid government plans to introduce reforms in major automotive companies to boost both quality and quantity of the cars produced inside the country.
As reported by IRNA, vehicle output reached 963,179 in the year to March 20, 2022, down 2.9% from the year to March 2021.
The report said cars accounted for over 90% of Iran’s annual vehicle output as total car production of two major automotive companies and a handful of smaller firms reached 868,130 units, registering a decline of 3.9% against the previous year.
Pickup truck production declined by 1% to a total of 79,751 units, while that of vans, trucks and tractors more than doubled to reach 12,382 units.
Metal Industry
The metal industry owners said the fall in purchasing power and the rise in the prices of metals such as copper and aluminum have led to the shortage of working capital needed to purchase raw materials.
New data on the Purchasing Managers’ Index for Iran’s industrial sector show it plunged below the threshold to stand at a 23-month low.
PMI for the current fiscal year’s first month (March 21-April 20), settled at 37.02 from 56.43 in the preceding month (Feb. 20-March 20), indicating a 34.4% drop, according to the Statistics and Economic Analysis Center of Iran Chamber of Commerce, Industries, Mines and Agriculture show.
The headline PMI is a number from 0 to 100. A PMI above 50 represents an expansion compared with the previous month. A PMI reading under 50 represents a contraction and a reading of 50 indicates no change. The further away from 50, the greater the level of change.
PMI is based on five major survey areas: new orders (30%), raw material inventory (10%), production (25%), supplier deliveries (15%) and employment (20%).
The survey poses 12 questions about business conditions and any changes, whether it is improving, no changes or deteriorating.
"Non-metallic mineral industries" posted the highest PMI with a reading of 49.69 while "clothing and leather" registered the lowest PMI of 25.56.
Notably, the “new orders" was the only sub-index registered below the 30 mark.
The report noted that in general the “new orders” sub-index fell drastically across a majority of industries. Moreover, the industries saw a dramatic rise in costs (workers’ wages, raw material prices and those of energy and transportation, among others).
Business owners believe the steep rise in wages mandated by the government in the current fiscal year that started on March 21 and the rise in production costs, including a multifold hike in the prices of electricity, increase the final price of their products. Under the circumstances, many business owners will be forced to lay off their workers in the months to come.
“Minimum wages have been stipulated to rise by 57.4% and higher wages should be subjected to increase by 38% in the new Iranian year,” Minister of Cooperatives, Labor and Social Welfare Hojjatollah Abdolmaleki said in March.
