Iran's Industrial Sector Contracts: PMI Changes in 1st Iranian Month (March 21-April 20)

EghtesadOnline: Iran’s industrial sector has slumped into contraction as the new Iranian year (March 2019-20) got underway, the latest purchasing managers’ index report of the Iran Chamber of Commerce, Industries, Mines and Agriculture’s Statistics and Economic Analysis Center shows.

News ID: ۷۸۴۶۴۲

06 May 2019

It is six months now that the statistical center of ICCIMA measures the PMI in Iran, under the Farsi acronym “Shamekh”.

PMI for the first Iranian month (March 21-April 20) hit 36.38 from 55.36 in the preceding month (Feb. 20-March 20), indicating an 18.98-point or 34.28% decline month-on-month, according to Financial Tribune.

The drop largely resulted from reduced activities due to the Iranian New Year holidays, the report added.

PMI indicates the economic health of manufacturing and services sectors. The purpose of PMI is to provide information about current business conditions to company decision-makers, analysts and purchasing managers.

The headline PMI is a number from 0 to 100. A PMI above 50 represents an expansion when compared with the previous month. A PMI reading under 50 represents a contraction, and a reading at 50 indicates no change.

PMI is based on a monthly survey sent to senior executives of more than 400 companies. It is based on five major survey areas: new orders with the importance weight of 30%, raw material inventory levels (10%), production (25%), supplier deliveries (15%) and employment (20%). The surveys include 12 questions about business conditions and any changes, whether it is improving, no changes or deteriorating.

At present, ICCIMA publishes reports only for Iran’s industrial sector and its 12 subset fields. It also plans to survey the services and agriculture sectors in the near future.

The monthly report is the first of its kind in the country.

Five Main Indices

From the Iranian month ending March 20 to the month ending April 20, the following sub-indexes performed as follows:

The "production" sub-index fell from 57.23 to 23.88 to record the sharpest decline among the five main indexes of PMI during the month under review.

“Non-metallic mineral industries” registered the highest PMI while “textile industries” recorded the production PMI of 0.

The "new orders" sub-index fell from 66.81 to 35.08.  All select industries posted PMIs lower than 50. “Vehicle and auto parts manufacturing” registered the highest PMI of 45.6.

The "supplier deliveries" sub-index, which measures how fast deliveries are made, fell from 50.50 to 47.17.

The highest PMI (58.6) was posted by “machinery and home appliances” and the lowest was recorded for “textile industries”.

The "raw materials inventory levels" sub-index fell from 39.96 to 34.32.

Overall, the 12 industries posted PMI readings of below 50 in the first month of the current Iranian year.

“Oil, natural gas and refineries” registered the highest PMI (45) among all industrial groups.

The PMI reading of “employment” sub-index remained below 50, such that it fell from 47.17 to 46.87 month-on-month. “Clothing and leather production” registered the highest PMI (62.5), whereas “textile industries” posted the lowest (38.2).

Secondary Criteria

To calculate PMI, seven secondary criteria were also surveyed by the center, namely raw material purchase prices, warehouse inventory level, exports, prices of products, fuel consumption, sales and production forecasts.

“Raw materials purchase prices” improved from 81.67 to 89.48. All select industries registered a PMI reading of higher than 50 in the month ending April 20, suggesting that the prices of raw materials needed by all industries have increased month. Raw material purchase prices of “non-metallic mineral industries” leaped to a record high of 100 in the Iranian month ending April 20.

“Warehouse inventory level” grew from 39.10 to 45.55. The lowest PMI was recorded for “wood industries, paper and furniture” and “clothing and leather production”, as both reached 37.5.

“Exports” fell from 49.33 to 37.88. The decline in the export of “oil, natural gas and refineries” was quite significant, as the industry’s “exports” sub-index fell to 27.5.

“Prices of manufactured products” increased from 62.83 to 69.95. Of all the 12 industries, “tire and rubber production” recorded the highest PMI of 82.4 during the first month of the Iranian year.

“Fuel consumption” declined from 55.74 to 33.72. “Non-metallic minerals industries” registered the highest PMI (45.5) whereas “textile industries” posted the lowest PMI (26.5), suggesting that the latter group had the lowest fuel consumption in the month ending April 20.

"Sales level" fell from 63.65 to 24.74 and “machinery and home appliances” posted the highest PMI with 37.1.

“Production expectations for the next month” improved from 32.40 to 68.8, which could be the harbinger of better times for industries. Among 12 groups, “food industries” registered the lowest PMI of 57.6 in the month ending April 20.

The overall PMI index for industries declined from 55.36 to 36.38 in the month ending April 20.

Among the most exact indicators showcasing a country’s economic condition, PMI was first devised by the Institute for Supply Management in the US in 1948. The PMI is calculated as (P1 * 1) + (P2 * 0.5) + (P3 * 0) where P1 is percentage of answers reporting an improvement, P2 is percentage of answers reporting no change and P3 is percentage of answers reporting a deterioration.