Left to Their Own Devices

EghtesadOnline: Iran's machine-made carpet, moquette and flooring industry depends largely on imported raw materials and machinery.

News ID: ۷۸۳۹۵۸

10 September 2018

Given the worsening state of the economy, chaotic currency market and unstable financial and banking regulations, producers are dealing with multiple challenges originating both from inside and outside the country. The future of the industry, at best, seems gloomy and companies, more than ever before, seem to be left to their own devices.

Tehran is hosting the 10th International Exhibition of Floorings, Moquette, Machine-Made Carpet and Related Industries with the participation of 120 domestic and foreign companies, including from Turkey, China and Taiwan.

Speaking to Financial Tribune on the opening day of the four-day expo on Thursday, Mohammad Mehdi Mobasher, managing director of Pardis Baft Yazd Co., a  producer of moquette, refers to shortage of working capital, complications in financial transactions with foreign companies, high taxes and insurance fees as the most pressing issues facing his manufacturing business, according to Financial Tribune.

“Most moquette producers are operating below capacity due to lack of raw materials, such as fiber and resin. Profit margins are of the descending order amid market recession and the systemic decline in purchasing power,” he said.

He noted that as petrochemical companies are mostly inclined toward export markets amid the ever-weakening national currency, local manufacturers are being deprived of the main raw material (petrochem) produced inside the country.

The rial has lost more than 70% of its value since the beginning of 2018.

“Increased costs have also pushed up end prices, much to our disadvantage.”

Mobasher has been active in the flooring industry since 1996. He founded Pardis Baft Yazd Company in 2007 in the Yazd Special Economic Zone. The company was founded with the aim of producing and exporting to neighbors, including Persian Gulf countries.

The company’s focus was initially on producing artificial turf in partnership with a Belgian company. However, following the impact of international economic sanctions on Iran over its nuclear program in those years, foreign companies walked away and Pardis Baft was forced to enter moquette production.

Now, according to Mobasher, with 5 million square meters of production per year, his company has a 10% share of the domestic moquette market.

He believes moquette production in Iran not only has the capacity to meet internal market needs, but is well placed to meet export demand.

The company exports 50-60% of its products annually.

Pardis Baft Yazd Co. exported $5 million worth of moquette in the last fiscal (March 2017-18), mainly to Iraq, Afghanistan and Pakistan.

The company buys some of its raw materials in the form of fibers from processing factories that in turn meet their own needs from local petrochemical firms.

However, machinery and equipment used in the industry are largely imported.

Pardis Baft imported €2 million worth of machinery last year.

The United States pulled out of the historic nuclear deal in May and announced the “highest level” of sanctions against Iran. Ever since, most international companies and banks who had resumed business in Iran following the removal of international sanctions in 2016 put on hold their working relations with Iranian companies in the fear of falling foul of the hostile US government. This has created immense difficulties for local manufacturers, especially those relying on imports.

“The future of our industry seems grim not only because of the sanctions and harm inflicted from outside the country, but also because the government and policymakers have no contingency to deal with the looming crisis,” he said.

Mobasher said the textile industry in Iran has the potential to emerge as the second biggest employer after the oil industry.

Yet, many textile companies had to cut jobs in recent years “simply because they are underperforming.”

One hundred people are directly working for his company and almost 500 people are involved indirectly.

Tehran, Isfahan and Yazd are the production hubs of floorings in Iran.

On the Verge of Liquidation

Nasser Sadouqi, the head of Kashan Zomorrod Carpet Company’s board of directors, is also of the opinion that times are bad.

Echoing Mobasher’s stance, he told us that access to raw material and foreign equipment in the machine-made carpet industry has become almost impossible, pushing many companies on the verge of bankruptcy.

“Many companies are unable [some say unwilling] to clear their goods from the customs due to foreign currency issues,” he noted, referring to a litany of problems facing importers as a result of the steep increase in foreign currency rates.

Customs terminals are grappling with problems arising from a growing number of imported shipments piling up at points of entry as companies are unable to clear their goods because the government has been demanding they pay surcharges on import prices to compensate for the tanking national currency.

Kashan is the machine-made carpet production hub in Iran. According to Sadouqi, the ancient city in Isfahan Province is home to over 1,800 carpet factories.

Over 90% of raw material needed for machine-made carpet production are imported from Turkey, South Korea, Thailand and China.

He says each machine in the key industry needs an estimated 25 tons of raw material per month to operate.

“Carpet producers don’t see much hope to continue functioning in the current circumstances and the whole concept of manufacture has become all the more vulnerable,” he told the Tribune.

A representative of another producer at the exhibition referred to the quality of Iranian carpets and diversity of designs as the main competitive advantage in global markets.

“Even Turkish producers, who enjoy full government support, have not been able to compete with Iranian carpets in terms of quality and design.”

Nonetheless, according to Ezzatollah Delavari, the head of Mahestan Carpet Company’s board of directors, high production costs in Iran have led to higher factory prices of Iranian carpets in international markets.

“As a result, exports have effectively lost their competitive edge and comparative advantage in target markets.”

He blamed poor quality and supply problems of domestically-made raw materials, including polyester, for manufacturers’ inclination toward imports.

Machine-made carpet in Iran fully meets domestic demand, he said, and called on those in charge to ease exports.

Mahestan Carpet Company’s nominal annual production capacity stands at 1 million square meters.

Production, Export Capacities

Machine-made carpet accounts for nearly 50% of the textile industries’ annual exports.

Machine-made carpet production in Iran is said to be in the range of 80 million square meters per year, 50 million square meters of which are sold in the domestic market.

Reports said last year 94 million square meters of machine-woven carpets were produced.

According to available data, per capita consumption of machine-made carpet in Iran amounts to around 2.3 square meters.

Around $287 million worth of machine-made carpet were exported during the last fiscal (March 2017-18). Based on the figures released by the Islamic Republic of Iran Customs Administration, the main export destinations were Afghanistan and Iraq.

Close to $4.8 million worth of machine-made carpets were imported during that year. Turkey with $2.5 million was the main exporter, IRNA reported.

The 10th International Exhibition of Floorings, Moquette, Machine-Made Carpet and Related Industries will conclude today (September 9).