Focus: Industry

Don’t Stop Me Now

Don’t Stop Me Now

May. 14, 2013

Iranian industrial output continued on its sustained growth path in 2011, expanding by 4% in 2011, only slightly below the 4.5% recorded in 2010. The sector, while losing employment to the swelling services industry, still employs almost 32% of the Iranian workforce. This is split across many disciplines, the major being the automotive and steel sectors. Other significant sectors include agribusiness, retail, and aerospace.

Automotive sales reached $18.8 billion by the end of the Iranian year 1390, which ended on March 21, 2011. While this includes both imported and domestically produced vehicles, 1.4 million vehicles were produced in the country over the same period, a growth of 3.5% over the previous year.

The country is also the 15th largest steel producer in the world. According to the World Steel Association, Iran produced 7.36 million tons of steel in 1Q2012, also making it the second largest producer of steel in the Middle East after Turkey and an exporter of 17 million tons annually. Iran now predicts that the country's steel production will reach 55 million tons by 2025, reaching self-sufficiency within three years.

The food and agribusiness industry also represents a significant portion of industrial employment, with 16.1% of Iranians employed in the industrial sector working within the sub-sector. The packaging sector is also moving into prominence as domestic retail tastes become more sophisticated and exporters look at ways to keep products fresh. Iran's advancements in the aerospace field also signal its intent to continue on a high-tech growth curve. The Iran Aircraft Manufacturing Industrial Company is currently working with Ukrainian Antonov Aerospace Company to produce Antonov-148 aircraft, seen as a competitor to the Sukhoi Super Jet and the Brazilian Embraer ERJ190.

AUTOMOTIVE

Iran produced 1.4 million cars from 2Q2011 to 1Q2012. Total sales, including imported and domestically produced vehicles, totaled $18.8 billion. Production was up 3.5%, a slower growth figure than Iran has been used to over the last decade. A total of 40,000 vehicles were imported over the same period, according to Turquoise Partners, amounting to $2 billion. This led to profits of $460 million for Iran's vehicle importers, according to the Trade Development Organization of Iran. The government also made $875 million on import taxes from the trade over the same 12-month period. Popular brands for import include Kia, Hyundai, Toyota, and Mercedes-Benz. In the face of limited import options on auto parts, Iranian car manufacturers are now petitioning the government to sanction a price increase as costs of production rise. This will especially impact Iran's two largest producers, Iran Khodro and Saipa. In April 2012, the government proposed an average price increase of 5%, and investors remain confident as stock sales for automotive manufacturers continue strongly. The Central Bank of Iran (CBI) has also opened a $400 million credit line to Iran Khodro and Saipa, in a move that has seen the index of vehicles and auto parts rise 36.23% to erase a five-month decline, according to Mofid Securities.

STEEL

According to World Steel Association statistics, Iran's crude steel output totaled 7.36 million tons in 1Q2012, placing it 15th in terms of the world's largest steel-producing nations. Although production fell by 3.5% in June 2012, it was back up again in August, reaching 1.13 million tons, 10.8% higher than in the same month of the previous year. This is likely due to drops in Chinese production and expanding capacity in the domestic Iranian market. The authorities anticipate Iran reaching self-sufficiency in steel within the next three years, on its way to reaching a target of 55 million tons of yearly output set for 2025.

Exports of steel products are also on the up. Between March 21 and July 21, 2012, exports grew by 176% compared to the same period the previous year, according to the Iranian Steel Producers Association. In addition, there has been an estimated 25% reduction in the import of crude steel and other steel products. The major players include Mobarakeh Steel Mill, with a 47% market share, Khuzestan Steel Company, with a 23% market share, the Isfahan Foundry Group, with a 20% market share, and the Iran Steel Industries Group, with a 10% market share. Prices have risen in recent months, with the price of steel booms and hot-rolled steel rising 12% and 4%, respectively, on the Iran Mercantile Exchange (IME).

AGRI-FOOD & PACKAGING

A total of 12,198 entities are engaged in the Iranian food industry, or 12% of all entities in the industry sector. The sector also employs approximately 328,000 people or 16.1% of the entire industry sector's workforce, according to the Iranian Food Industry Organization. Investments now total $7.7 billion, or 18% of total investment in the industry sector. Sector exports range around $1 billion per year, and the main export items are confectionary, dairy products, tomato paste, fruit juice and concentrate, mineral water, and pasta. The main export regions include the Middle East, Central Asia and other CIS nations, Europe, and South America. The country is also increasingly importing food technology, including processing and packaging equipment. According to the German Engineering Association, imports of such equipment increased to $361.8 million in 2011 from $360.8 million in 2010 and $293.1 million in 2009. The main suppliers include Germany, Italy, China, France, Switzerland, and the Netherlands.

The presence of foreign investors in the country also lend to the sector's growing high-tech image, with companies such as Danone highly active. Danone runs operations in Iran related to water, dairy products, and medical nutrition. Key to Danone's presence is Iran's youthful population portfolio and high birth rate. “It is one of the most populous countries in the region, and so there was a real long-term strategic intent from the side of Danone to make an entry into this market," commented Jan Wagensveld, Managing Director of Nutricia-MMP, a Danone partner. On the packaging side, companies such as MM Packaging are reaping the benefits of utilizing the latest technologies and being present in a large market. Producing 20 tons of tobacco packaging per day, the company is the largest in the sector and looking to branch out. “We have just bought 45,000 sqm of new land around our plant to make this possibility come true," said Managing Director Mehdi Rahimi, who is bullish on the sector's changing trends and growth potential. “If you go to the supermarket to buy tissues, you will buy the ones with the most attractive packet," he added, concluding that, “around 10 years ago this was inconceivable, but now everybody is aware of the power of packaging… Demand is high and we are investing."

AEROSPACE

Iran's aerospace industry grew wings in 2011, as it was announced that Ukrainian Antonov Aerospace Company would partner with the Iran Aircraft Manufacturing Industrial Company (HESA) on the production of 78 Antonov-148 jet aircraft. The aircraft is a competitor to the Russian Sukhoi Super Jet and the Brazilian Embraer. Designed for regional use, sector experts predict worldwide demand for the aircraft could total 500. Indeed, in 2012 the Antonov Aerospace Company announced a $500 million deal to supply 15 aircraft to Panama. The first fully Iranian Anotov-148 is expected to fly in 2013, following on from the Iran-140, produced after the country acquired the production license for the Anotov-140. Established in 1976, HESA has extensive manufacturing, assembly, and laboratory facilities in Isfahan. Aside from the Iran-140, it has also successfully produced the Abadil drone, the Shahed and Zafar range of helicopters, the Dorna training aircraft, and the Karrar unmanned combat air vehicle (UCAV), in addition to several jet fighters, including the Azarakhsh, the IAMI Shafaq, and the Simorgh.

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