Iran Tire Industry Wary of Market Volatility

EghtesadOnline: With tire importers grappling with government bureaucracy, which has hampered entry of goods and impeded the supply chain, tires are soon to go scarce and just like many other commodities their prices are certain to skyrocket in the coming days.

News ID: ۷۴۵۸۱۷

07 August 2018

The secretary for Iran's Tire Importers Association Mohammad Mirabedini says they have not been provided with foreign currency through an earlier state-established system and if the mechanisms are not overhauled, the country is likely to face a tire shortage crisis, reported Asre Khodro.

After US President Donald Trump reneged on the 2015 Iran nuclear deal, the US dollar exchange rate hit unprecedented highs, prompting the government of President Hassan Rouhani to step in and unify the USD rate at 42,000 rials on April 9.

Later on, the administration established the Forex Deals Integrated System, locally known as Nima, as a platform for importers to declare their currency needs, according to Financial Tribune.

Nima has helped the administration tighten oversight of imports and save the country's dwindling foreign currency reserves from complete depletion by categorizing import items and prioritizing their entry into the country.

According to Mirabedini, tire imports fell under the category of "raw materials and intermediate goods," which was considered by the administration as a second priority, and therefore not entitled to a speedy allocation of foreign currency in the past few months.

>Lurking Crisis

Tire imports have declined 56% in the first quarter of the current fiscal which started in March compared to the year before.

Even so, importers have managed to handle the scarcity of bus and truck tires in the previous months by supplying the market with tires sold at government-mandated prices.

Mirabedini maintains that importers have been able to manage the turbulence in the bus and truck tire market since there are merely one million buses and trucks across the country. He added, "The same cannot be done for the over 21 million cars on Iranian roads."

According to him, firms at most would be able to supply the market's needs for another two months before the inadequate supply of tires leads to exorbitant inflation.

Mirabedini called on the administration to allocate foreign currencies to the businesses before the market plunges into a state of chaos.

Representatives from the association are to hold a meeting with authorities at the Industries Ministry this week to discuss the current state of affairs.

>Tire Production Lines

Tire production is also at risk as manufacturers face a shortage of raw materials which if mishandled, can give rise to another challenge in the auto market.

According to the head of the Tire Industry Association of Iran Mohammadreza Taqiganji, the country's tire factories have enough raw materials to continue production only for 10 to 20 days before they are forced to shut down their facilities.

Up to today, businesses were not allowed to import commodities without the confirmation of the government and the follow-up allocation of foreign currency by the Central Bank of Iran.

Sunday night saw the recently appointed head of CBI Abdolnaser Hemmati announce a new forex policy which can, in theory, calm the volatile market.

Only essential goods will be allocated foreign exchange at the subsidized government rate and importers can obtain foreign currency on the free market at a rate set by supply and demand in the coming weeks.

Many business insiders are of the opinion that the government's new forex policy could have been the industry's savior if implemented sooner, however, many point out that while it has been high time for the government to overhaul the system, the decision can cushion the impact of US sanctions on the economy.