TBY talks to Mohammad Reza Montazeri, Managing Director and Board Member of FKCC/Tamin Cement Holding.
TBY What are the main sources of cement demand in Iran? Do you see this demand profile changing in the coming 3-5 years?
MOHAMMAD REZA MONTAZERI Iran has a very large young population that doubled in size over the past 30 years, and the need for rehabilitation, the establishment of new towns, infrastructure projects, and the country’s ever-growing economy all account for this high level of demand. Cement consumption per capita was about 640 kilograms in 2009. We expect cement consumption will grow at the rate of about 10% per year for the next three years. We are also in pursuit of creating new areas for the use of cement. For instance, we are trying to promote asphalt cement and persuade local governments to use cement instead of bitumen on roads and pavements for construction. This new usage of cement in Iran will produce a sizable demand for our products.
The production capacity of the Iranian cement industry is growing steadily through the entrance of private firms. What are your goals and strategies for this changing market?
With the arrival of the new private firms, Iran’s cement production capacity will increase to 89 million tons per year by 2013. It is expected that local cement consumption in that year will be about 67 million tons per year, however. The surplus is therefore planned for export to overseas markets in the region, at first, by means of effective promotion and marketing, by focusing on the development and utilization of appropriate transportation means, whether by land, sea or rail, as well as creating the relevant terminals to service these transport modes. Also, we will seek to implement a production distribution management system, assigning cement plants near the border for exports and devoting the rest to the local market.
We also aim to protect our share in the local market. One of the strategies we will follow will be through buying stakes in other companies through the Tehran Stock Exchange. Thus, as a holding company, we will preserve our market share.
FKCC/Tamin Cement Holding is the largest cement producer in Iran. How would you describe its structure?
The Social Security Organization is the main investor in the Iranian cement industry and is FKCC/Tamin Cement Holding’s major shareholder through its two main holding companies. In total, there are 17 cement companies (having 18 plants) and more than 15 specialized companies related to the cement industry under the control of FKCC/Tamin Cement Holding.
Our current clinker production capacity is about 23.3 million tons per year, while its market share in August 2010 was almost 35%. The value of cement and cement products sold in 2009 reached $980 million.
After the export restrictions, which ended recently, Iranian cement companies began regional exports. What will be the role of exports in the future for the Iranian cement industry?
Until 2008, the demand for cement was higher than the supply, and therefore the government had to control exports, prices, and logistics. With the current expansion of the cement industry, a surplus in cement products is foreseen in the near future. Taking into account the strong demand for cement in Iran’s neighbors, this surplus can be exported to these markets. Iraq, Afghanistan, countries of the CIS, and Persian Gulf states are the immediate markets, though more distant markets could also be considered.
The government has plans to remove energy subsidies. What would be the effect of this policy on domestic producers?
Around 40% of total costs for a world-class cement producer come from energy, while in Iran this share is about 14% of total costs thanks to the government’s subsidies. It is now planning to lift this advantage gradually in three to five years. The government, of course, will help industries overcome any disadvantages they experience, by improving energy consumption, for example, through financial and technical assistance. The effect of this policy on the cement industry will mostly be on profit margins. Producers will have to work hard to minimize any potential losses by improving management, productivity, and efficiency. Producers will also need to work hard to maintain their market share both in foreign and local markets in the midst of the tough competition between the older players in the public sector and newcomers in the private sector.
What is the role of foreign investors in your future strategy? What are you doing to attract foreign investment to your company?
FKCC/Tamin Cement Holding is currently negotiating with a leading international company to explore and expand into overseas markets by establishing a joint-venture company. Other companies in Iran have also benefitted from the technical and financial assistance that foreign investors can provide.
Do you think the Iranian cement industry could do more to improve its record on the environment?
Like many other industries in the world, the cement industry in Iran is facing the challenge of protecting the environment. FKCC/Tamin Cement Holding is one of the pioneers of environmental protection activities in the Iranian cement industry, and we have an active engineering services company that controls pollution levels. We have been active in installing dust collecting equipment in several cement plants and in applying other measures to ensure compliance with environmental standards. FKCC/Tamin Cement Holding is a sponsor of Iran’s biodiversity and has a strict policy of periodical site visits to control environmental issues. The Iranian Department of the Environment supervises all of these activities.
What do you think foreign investors should know about Iran and the local cement industry?
Iran’s cement industry has the capability to attract investors and enjoys a great deal of potential for development and progress. Its geographical advantage for the international trade in cement products is just one among many, thanks to its suitable location in the heart of the Middle East and its natural connection to all parts of the world through the Persian Gulf waterway as well as via overland connections to states in the CIS region and Turkey. All this has turned Iran into a unique strategic area.
In raw materials, Iranian cement plants have many desirable deposits of limestone, gypsum, and clay close to production facilities, and in many cases there is no need for extraction using explosives. Kaolin, pozzolan and many other additives and raw material mines are also readily available.
Iran can produce the best quality cement in the region. The Iranian national standard for cement was published 50 years ago, and the observation of this standard is mandatory for all cement producers in Iran. All cement plants have specific and specialized labs for quality control. In addition, more than 20,000 skilled employees are working in the management, engineering and technical departments of the cement industry and more than 80% of the equipment and machinery needed for greenfield projects is manufactured locally.
Our engineering services company has the capability and know-how to carry out and execute engineering, procurement and construction (EPC) projects, including management, plant design, mechanical and electrical installation, and construction.
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