Iran's Industrial Sector Climbs out of Recession

EghtesadOnline: Deputy Minister of Industries, Mining and Trade Mohsen Salehinia has declared that a longstanding recession plaguing the Iranian industrial sector is now a thing of the past.

News ID: ۷۷۷۲۰۰

24 June 2017

Salehinia cited the Central Bank of Iran's recent report that put the growth in the domestic industrial sector at 6.9% in the last Iranian year (March 2016-17) as well as another report by  the Statistical Center of Iran that shows the sector grew by 6.5% over the same period compared to the year before.

CBI and SCI both publish periodic statistics on Iran’s economy, but the two bodies’ data often differ from one another, as they use different base years to calculate their data.

As reported by Shatanews, the ministry’s official news portal, Salehinia said Iran's industrial sector contracted by 10.5% and 1.7% in 2012-13 and 2013-14 fiscal years respectively. The sector expanded 7.6% in 2014-15 but again posted negative 0.3% growth in 2015-16, according to Financial Tribune.

He added that the sector grew 2.2%, 4.4%, 6.8% and 12.1% respectively in the four quarters of the last fiscal year, showing a steady upward trend.

> Automakers Biggest Contributors

Salehinia attributes last year's strong growth record mainly to the remarkable 37% expansion in auto manufacturing sector.

Unofficial data show total car production hit 1.25 million during the 12-month period.

Automakers are aiming at a production rate of 3 million units per year over the next eight years, 30% of which are to be exported, the Industrial Development and Renovation Organization of Iran said.

According to Trade Promotion Organization of Iran, local automakers exported vehicles worth $36.6 million last year. Iraq, Algeria, Lebanon, Turkmenistan and Syria were the main destinations.

The deputy minister believes auto manufacturing will remain a major driving force behind growth in the industrial sector, noting that initial estimates indicate the production of 300 vehicles in the first quarter of the current year (March 20-June 21), registering a 13.7% rise compared with the similar period of the year before.

According to Salehinia, tire output rose 17% last year, with 10 factories reporting increase in production and added value.

> Promising Steel, Petrochem Figures

The production of steel and petrochemicals also posted promising figures last year, amid growth in overseas demand and relaxation of the nuclear-related restrictions.

Iran produced 50.61 million tons of petrochemicals last year, of which 20.3 million tons were exported—a new record in outbound shipments. Nominal production capacity reached 61.9 million tons, as output capacity rose by 8% year-on-year. Actual output also increased by 9% year-on-year to 50.6 million tons.

Petrochemical consignments, which went mostly to Asia, Europe and South America, earned $9.55 billion in revenues for Iran.

According to the National Petrochemical Company, the completion of petrochemical projects will raise Iran’s nominal production capacity to 72 million tons a year by the end of the current fiscal that started on March 21.

“Upon the launch of new petrochemical projects this year, output is expected to reach 59 million tons, which will indicate an 18% rise compared to the previous fiscal,” the head of NPC, Marzieh Shahdaei, has been quoted as saying.

According to Shahdaei, 33 million tons of the total projected output, worth $11 billion, will be exported to target destinations and the rest will be used domestically.

Iranian steelmakers produced 18.46 million tons of semi-finished products last year, up 11% compared to the year before. They also produced 18.15 million tons of finished products during the same period, indicating a 4% rise year-on-year, according to Iranian Steel Producers Association.  Semi-finished and finished steel products' exports stood at 6.69 million tons worth $2.69 billion during the period, up 49% and 0.3% in weight and value respectively YOY, the Iranian Mines and Mining Industries Development and Renovation Organization reported.

Iran aims to become the world’s sixth largest steel producer as per the 20-Year Vision Plan (2005-25), which envisions an annual production of 55 million tons of crude steel and 20-25 million tons of exports per year by the deadline.

Minister of Industries, Mining and Trade Mohammad Reza Nematzadeh said Iranian steel mills have so far materialized about 60% of the capacity target.

> Cement Affected by Construction Downturn

However, as a result of a lingering slowdown in Iran’s construction sector, the cement industry was among the worst-performing industries last year, shrinking 5.7% compared with the year before.

Iranian cement producers produced 55.26 million tons of cement and 57.65 million tons of clinker during the last fiscal year, indicating a 6% and 4.18% drop in production respectively year-on-year. Moreover, during the period, they exported 13.1 million tons of cement and clinker, down 13.19% YOY.

According to CBI, construction was the only sector that contracted last year, registering a -13.1% growth.

Iran’s housing sector has been in recession since 2012, with estimates showing little signs of improvement until at least March 2018.

The challenge remains for the government to spur the construction sector to generate demand that could further push up the industries associated with construction, such as the steel, cement and tile sectors.

According to CBI, Iran posted a whopping 12.5% growth last year, owing mostly to the ramped up oil production and exports after the removal of international sanctions against Iran over its nuclear program in January 2016 after a nuclear deal with world powers months earlier.

GDP growth, without taking oil production into account, stood at 3.3%, the CBI said, noting that the oil sector registered a dramatic 61.6% growth last year.

The Statistical Center of Iran put last year’s growth at 8.3%, including oil, in a report released late May; excluding oil, the economy expanded by 6.3%.

Experts believe high growth rates will become challenging this year, as oil indices have already reached pre-sanctions levels.