The consumption of glass is very much related to the dynamism of the construction sector as a whole. In the local market we are under pressure from competition. The inflation rate in Iran sometimes reaches 20% annually, and as a result the finished cost of our products is going up. Sometimes we have to sell our products at no profit. This is one of the difficulties we face. But currently we can say that the inflation rate is going down a little bit. We were expecting 25%, though now we are expecting 17-18%, or even less.
The government actually started to build some homes for lower income families. This form of construction activity is going on for these people, but these apartments are very limited in size, and so the consumption of glass will also be very limited. We do not expect the consumption of glass to increase in the real estate market very soon.
As Kaveh Glass Group, we are increasing our production capacity and there are also other companies that are increasing their production capacities. In the absence of increased demand in the local market, 50% of the glass produced in Iran will be surplus after meeting local demand. As a result, we have to make more efforts to export our products. We are lucky to have neighboring countries in which reconstruction activities are going on. As the largest producer of glass in the Middle East, exporting more is our current target.
Unfortunately, the cost of energy is going to be increased by 10 to 12 times very soon. It will be a gradual increase, but the present trend suggests that we have to pay 12 times more than what we are paying today for energy, and thus it will be difficult to compete. The cost of energy will probably reach European levels, and so we have to try to minimize our costs in order to stay competitive. Regarding tableware, we export 25% of our production to different countries, and these kinds of products need to be regularly updated. We have to change the designs so that they stay fashionable in the market. By investing more in design, we aim to expand in the tableware market.
We have a motto every year in our country that shows the main strategy to be followed by everyone. Last year the motto was to save energy, and this was very good for our activities. This year it is to practice and work harder towards achieving further energy savings. In our business, to ensure the widespread and proper use of insulation material we need the support of the government. According to research, if you spent 3 to 5% extra on any kind of building on insulation and similar materials, the money you save on energy costs will be returned within several months, and over the life of the building you will save a lot of energy. This is a real win-win situation.
Energy in Iran used to be very cheap and it didn’t seem very important. The people and the government did not respect it very much. But these days we are finding that the cost of energy is getting higher, and it is becoming a more valuable product. In the future the government and the people will be paying more attention to saving energy and respecting energy much more.
At the moment we don’t have problems in our market—we still have customers. The problem is that our customers are asking for substandard products. Our manufacturing and production lines are working at full capacity. But if the customer asked for a higher standard product, that would be better for us and our profit margins. It is also good for the customer and the government because the benefit they get will be higher as this is the proper mechanism for insulation. We recently started a lobbying project to motivate the government and the Ministry of Construction to make them put more emphasis on obeying insulation standards.
We are following projects on making new building panels, which are a mixture of glass wool, plasters, and other materials that are quite low in weight, good at reducing noise, and provide excellent heat insulation. We are looking to diversify our product range according to the needs of the country.
MOHAMAD RASTEGHAR PANAH
Every one and a half or two years, we have a recession in the building market. This one is related to government efforts to provide low-cost housing, which leads to a price freeze. According to the information that the government provides, every year we need 1.2 million to 1.5 million residential units. If you cannot supply this in one year, for the next year you have another 1.2 million added to demand. For the past two or three years the government has started to construct these types of buildings.
The state has been giving land to developers, but after the developers finish construction over two or three years they cannot sell the houses for prices higher than the government dictates. So, the contractors are building at a loss. Moreover, the places where these low-cost houses are built are far from the city center and the residents need to have a car or some other kind of transportation in order to get to work. This also decreases the demand for this type of housing. Another constraint is that construction in Tehran is currently limited to four stories in height, which renders it unprofitable. We have some kind of a dilemma between the private construction industry and the government’s price regulations, and this is inhibiting healthy growth.
In addition to constructors, people who want to renew their homes and those who still have steel or wooden windows are our target audience. PVC is not usable in Iran because of the weather and geographical conditions. Aluminum is much more durable. It’s more expensive to have aluminum, but it lasts longer and is renewable. You can powder coat it or decorate it or change the accessories, and it becomes like new.
Most of the new projects being built belong to the government, and the constructors on these sites are facing bureaucratic delays. As the producers of construction materials, we also have to take this situation into account.
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