Iran (Persian), also known as Persia,officially the Islamic Republic of Iran , is a sovereign state in Western Asia. With about 80 million inhabitants Iran is the world’s 18th-most-populous country.Comprising a land area of 1,648,195 km2,it is the second-largest country in the Middle East and the 17th-largest in the world. Iran is bordered to the northwest by Armenia, the Republic of Azerbaijan, and the Azerbaijani exclave of Nakhchivan; to the north by the Caspian Sea; to the northeast by Turkmenistan; to the east by Afghanistan and Pakistan; to the south by the Persian Gulf and the Gulf of Oman; and to the west by Turkey and Iraq. The country’s central location in Eurasia and Western Asia, and its proximity to the Strait of Hormuz, giveit geostrategic importance. Tehran is the country’s capital and largest city, as well as its leading economic and cultural center.
Iran is home to one of the world’s oldest civilizations, beginning with the formation of the Elamite kingdoms in the fourth millennium BC. It was first unified by the Iranian Medes in the seventh century BC, and reached its greatest extent during the Achaemenid Empire founded by Cyrus the Great in the sixth century BC, stretching from Eastern Europe to the Indus Valley, becoming a larger empire than previously ever existed in the world.The Iranian realm fell to Alexander the Great in the fourth century BC, but reemerged shortly after as the Parthian Empire, followed by the Sasanian Empire, which became a leading world power for the next four centuries.
Iran is the second largest economy in the Middle East and North Africa (MENA) region after Saudi Arabia, with an estimated Gross Domestic Product (GDP) in 2016 of US$412.2 billion. It also has the second largest population of the region after Egypt, with an estimated 80 million people in 2016. Iran’s economy is characterized by the hydrocarbon sector, agriculture and services sectors, and a noticeable state presence in manufacturing and financial services. Iran ranks second in the world in natural gas reserves and fourth in proven crude oil reserves. Economic activity and government revenues still depend to a large extent on oil revenues and therefore remain volatile.
More about Iran
The Islamic Republic of Iran is located in the west of Asia and shares borders with Iraq, Turkey, Armenia, Azerbaijan, Turkmenistan, Afghanistan and Pakistan. It covers a total of 1.65 million km2, has 82.8 million inhabitants and has the eighth-largest cement sector in the world, according to active capacity listed in the Global Cement Directory 2017. It was previously as high as fourth-largest in 2014/2015, and is aiming to improve its ranking in the near future.
Iran has been an Islamic Republic since the 1979 Islamic Revolution. Its transition to an Islamic republic led to the severing of ties with former ally the United States, a prolonged war with neighbouring Iraq in the 1980s and US, EU and UN sanctions.
Tensions with the international community were particularly high during the Presidency of the hardliner Mahmud Ahmadinejad between 2005 and 2013, although the subsequent election of the more moderate Hassan Ruhani in 2013 has led to a thawing of relations. The Iran Nuclear Deal Framework, an agreement reached between Iran, the US, the UK, Russia, France, China, Germany and the EU in 2015, which outlined a reduction in sanctions in return for curtailment of Iran’s nuclear programme, led to the lifting of the UN sanctions in 2016.
This has led to significant optimism that relations between Iran and major world powers can be normalised, although the new US President Trump recently described the deal as one of ‘history’s dumbest.’ Iran was included on Trump’s controversial ‘travel ban’ list. At the end of January 2017 Iran said that it would retaliate in kind against the ban, (before the ban was temporarily lifted), leading some to predict that US-Iranian relations could deteriorate once more under the new US administration.
The Iranian economy is currently dominated by the state, with large numbers of directly- and indirectly-state-owned companies in a range of sectors. It relies heavily on oil and gas sales, despite sanctions. The country is second in the world in terms of natural gas reserves and fourth in terms of proven crude oil reserves.
In 2016 around half (48.6%) of the labour force were involved in the service sector, with 35.1% in industry and 16.3% in agriculture. Unemployment was estimated at 10.7% in July 2016, broadly unchanged year-on-year from the same month of 2015.
Iran’s GDP was US$394bn in 2015 according to the World Bank, although it had been as high as US$592bn in 2011. This 33% decline is largely due to the prolonged decline in global oil prices. In 2016 GDP had been expected to rise once more due to the lifting of some sanctions.
Cement industry – Introduction
The Iranian cement sector traces its origins back to 1933, when the first plant, of just 100t/day, was built to the south of Tehran by Denmark’s FLSmidth. Subsequent capacity was added in 1937, taking the total capacity to 9000t/yr, before more significant expansion in the 1950s and 1960s (See Figure 1).1
By the end of the 1970s cement capacity had hit 8Mt/yr and capacity really took off after the revolution, despite war and sanctions. Capacity rose to 16.9Mt/yr in the decade to 1990 and nearly doubled again in the next decade to 29.5Mt/yr by 2000. Expansion then became even more rapid in the 10 years to 2010, when 41.1Mt/yr of additional capacity came online. Additions have since slowed, in part due to overcapacity. Capacity hit nearly 80Mt/yr in 2015. Table 1 shows the additions to Iranian cement capacity between 2005 and 2016, the most intense period of cement capacity addition.
The most recent data from the Ministry of Industries, Mining and Trade, released in January 2017, shows that Iran’s cement production fell by 1.4% year-on-year to 42.7Mt in the first nine months of the Iranian calendar year that started on 21 March 2016.2
Cement industry – Exports
In the not-too-distant past, Iran was a major global exporter of cement, but quantities have been reduced significantly due to sanctions. During the sanctions era, as Iranian cement demand has fallen relative to capacity, the country has become affected by overcapacity. This is helped by government policies that keep cement prices low, around US$35/t. This has driven a strong uptick in exports, as shown in Figure 2. Exports more than tripled between 2009 (5.6Mt) and 2014 (18.9Mt), before falling in 2015 by around a fifth to ~15Mt.1 By far the most popular destination was Iraq (7.2Mt, 48% of exports), followed by Afghanistan (1.3Mt, 9%), Kuwait (1.2Mt, 8%) and Qatar (1.2Mt, 8%).
In May 2016 Iran reported on cement exports for its 2015-2016 financial year, which ended on 20 March 2016. According to Abdolreza Sheikhan, secretary of Iran’s Cement Industry Employers Association, exports fell by 20% year-on-year to 18.5Mt. In comments to the Islamic Republic News Agency, Sheikhan blamed the fall in exports on security problems in the region, including in Iran’s main export market of Iraq. Iraq had earlier increased its tariffs on imports of cement and Azerbaijan had increased its cement production capacity, reducing its reliance on Iranian cement exports.
Shahryar Geravandi, the manager of Saman Cement at Kermanshah in western Iran, warned in June 2016 that Iraq’s high import tariffs on cement has put the Iranian cement industry in ‘crisis.’ He added that finding new markets for the surplus cement would be hampered by high transport costs.
In June 2016, it was also reported that Iraq would remove the ban on import of Iranian cement, according to Abdolreza Sheikhan. In comments reported by the Fars News Agency, Sheikhan said that Iranian and Iraqi officials had held several meetings on the issue. He added that Iraq had banned cement imports due to security problems in the country and the falling oil price. Iraq’s cement demand is currently met by its own domestic production but it previously took 60% of Iran’s cement exports.
Khosro Jamei, Managing Director of Fars & Khuzestan Cement’s Khash Cement subsidiary in south east Iran reports that, post-sanctions, exports are ripe to take off due to reliable and cheap fossil fuels from neighbouring Arab countries and short distances to large and rapidly-growing economies in Africa as well as to the north and east of Iran.
“In addition to having access to the vast and overwhelming markets of Afghanistan and Pakistan, we should, at this moment, focus on Oman, as well as east African and east Asian countries. To help Iranian cement export win back the markets like in the good old days, the government is backing up cement plants big time, whether it is allocating fuel or giving subsidies for transport. The government is trying to be there for the cement plants.”
Cement industry – Summary of producers
The Iranian cement industry has 79 integrated cement plants.i Of these, 10 are under construction or planned, leaving 69 that are currently producing cement. These share 85.0Mt/yr of capacity. Of this, around 1.8Mt/yr (2.1%) is white cement capacity.
The recent explosion in Iranian cement capacity translates into a fairly modern cement production infrastructure, with around 65% of the country’s cement kilns commissioned since 2000.1
The vast majority of cement plants in Iran are domestically-owned, as is typical in the region. However, unlike in some other countries, foreign investment has been further limited in the past due to US, EU and UN sanctions. A substantial proportion of the cement sector is ultimately controlled by the government. No major multinational producers or regional players are present in the market.
An additional >10.4Mt/yr of cement capacity is listed as non-operational, due to being either mothballed, closed, under construction or at the planning stage.
Cement industry – Producer profiles
The largest Iranian cement producers are:
Fars & Khuzestan Cement: Founded in 1950 as Fars Cement Company, Fars & Khusestan Cement is the largest producer of cement operating in the Iranian market. It has grown substantially from a capacity of just 200t/day in 1955, when production began. In 2017 the company has 18 subsidiaries and, together with its partner Ta’min Cement Investment Company, which has a further five cement plants, it operates nearly 32% of Iranian cement production capacity.
CIDCO: Cement Investment and Development Company (CIDCO) controls the cement sector assets held by Bank Melli Iran Investment. It has 8.0Mt/yr of capacity across five integrated plants.
Ghadir Investment: Founded in 1992, Ghadir Investment is a publicly-listed company engaged in a variety of industrial projects, including oil and gas, financial activities and cement production. Its cement operations began in 2005, at the peak of Iranian cement plant construction. Today it is the third-largest producer of cement in Iran, operating a total of 7.3Mt/yr via five cement subsidiaries. This is enough to give the company around 8.5% of the national market. It is also building a further 1.2Mt/yr of capacity at Mondashti.
Tehran Cement: Founded in 1954, Tehran Cement produced its first cement, from a 300t/day (0.1Mt/yr) kiln, in 1957. It launched numerous other lines over the next 30 years, bringing capacity to 3.1Mt/yr by 1987. In 2007 it replaced three of its older lines with a single line of 3400t/day(1.1Mt/yr), bringing its capacity to 4Mt/yr. Further capacity has since come online, bringing capacity up to 6.1Mt/yr. This gives it around 7% of Iranian capacity.
Economic and industry forecast
The economy of Iran is forecast by the International Monetary Fund to have grown by 6.6% in the year to 20 March 2017, following the lifting of sanctions.4 As of January 2017 the World Bank forecast that growth will increase to 5.2% in 2017, followed by 4.8% and 4.5% in 2018 and 2019.5 However, uncertainty returned to the fore in November 2016 following the election of Donald Trump as the 45th President of the United States. As of late February 2017, the IMF warned that deteriorating ‘relations with the US could deter investment and trade with Iran and short-circuit the anticipated recovery.’
The Financial Times further reports that the Iranian President Hassan Rouhani is under pressure from more conservative political groups who claim that the deal has done little to help ‘ordinary’ Iranians.4 With elections set for May 2017, a lot may therefore depend on whether Rouhani gets a second term as President.
However, the potential for growth in Iran, in the event that political conditions remain calm, are staggering. The opportunities will not be lost on its cement producers. Project Iran has identified US$200bn of infrastructure projects that could be on the cards, including US$154bn on building renovation in Tehran alone.6 This represents ‘Dubai-like’ levels of spending and will be driven in part by the new Iranian Building Code that specifies higher standards than previously, especially with relation to technology, energy, efficiency and the use of modern technologies. There are an estimated US$43bn of water infrastructure projects and tourism is expected to experience a renaissance, with associated construction and renovation of hotels, restaurants, shopping malls and other facilities.
International firms, including those that manufacture cement plant equipment and accessories, are in line to benefit, with an extra US$4bn of machinery expected to be imported in 2017 compared to 2016. Indeed, Germany’s Gebr. Pfeiffer recently announced that it will supply an MVR vertical roller mill to Biarjaimand Cement, the first time such a mill has been supplied to the country. Iran’s cement makers will hope that this type of investment is a sign of things to come.
Indeed, According to Khosro Jamei of Fars & Khuzestan Cement’s Khash Cement subsidiary, “It has been widely stated by major officials that Iran may increase capacity up to 120Mt/yr in the near future. Post sanction conditions and increases in domestic demand will help to achieve this.”
1. http://bub.vdma.org/documents/105698/13515006/Key%20Note%20Praesentation%20Zement/bed7f477-82a0-4777-a0d5-f1203b71b944. 2. Global Cement News website, http://www.globalcement.com/news/item/5746-iranian-cement-production-slowing-in-2016. 3. Global Cement News website http://www.globalcement.com/news/itemlist/tag/Iran. 4. Financial Times website, https://www.ft.com/content/4b6b1f7e-fdc5-11e6-8d8e-a5e3738f9ae4. 5. Tehran Times website, http://www.tehrantimes.com/news/409962/World-Bank-forecasts-5-2-GDP-growth-for-Iran-in-2017. 6. Project Iran website, http://www.project-iran.com/market-opportunities.