Monthly Construction PMI Stays in Contraction Mode

EghtesadOnline: The Iran Chamber of Cooperatives’ latest report on Purchasing Managers’ Index for the domestic construction industry reveals a contraction although it registered a slight uptick on a month-on-month basis.

News ID: ۷۸۷۵۶۳

05 January 2022

The construction PMI in the current fiscal year’s ninth month (Nov. 22-Dec. 21) settled at 43.98 from 42.8 in the preceding month (Oct. 23-Nov. 21), indicating a 2.76% increase.

PMI is an indicator of the health of economic sectors and provides information about current business conditions to decision-makers, analysts and purchasing managers.

Raw material inventory, employment conditions, new orders, supplier deliveries and export/production conditions were among the criteria quizzed, yielding a final score of between 1 and 100.

If a business scores 50, it means that no change has been perceived compared to the previous month, while scores higher or lower than 50 indicate that the business is expanding or contracting respectively.

The survey includes 12 questions about business conditions and any changes, whether it be improving, no changes or deteriorating. It is measured through a monthly survey sent to senior executives of 100 companies active in the real-estate sector. It is based on five major survey areas: "new orders" with a coefficient of 30%, "raw material inventory" (10%), "production" (25%), "supplier deliveries" (15%) and "employment" (20%).

The "new orders" sub-index stood at 36.57 in the month ending Dec. 21, indicating an 8.73% decrease compared with 40.07 of the month ending Nov. 21.

The "supplier deliveries" sub-index, which measures how fast deliveries are made, increased by 0.45% from 49.31 in the month ending Nov. 21 to 49.53 in the month ending Dec. 21.

The "raw materials (construction materials) inventory" sub-index declined by 1.88% from 42.47 in the month ending Nov. 21 to 41.67 in the month leading to Dec. 21.

The "employment" sub-index increased by 9.19% from 44.52 in the month ending Nov. 21 to 48.61 in the month ending Dec. 21.

To calculate housing PMI, seven secondary criteria were also surveyed by ICC, including "raw material purchase prices", which stood at 68.49 in the month ending Nov. 21. The sub-index grew by 10.18% to stand at 75.46 in the month ending Dec. 21.

"Warehouse Inventory" decreased by 6.88% to reach 43.05 in the ninth Iranian month from 46.23 in the eighth month.

The "exports" sub-index settled at 48.61 in the month ending Dec. 21 from 47.26 in the month ending Nov. 21, registering a 2.86% increase.

"Prices of products and services" increased by 3.2% to stand at 65.74 in the month ending Dec. 21 from 63.7 in the previous month.

"Fuel consumption" increased by 12.48% from 51.03 in the eighth Iranian month to 57.4 in the ninth month.

"Sales" grew by 7.03% from 43.98 in the eighth month to 43.98 in the ninth month.

And, "performance expectations for the following month" sub-index settled at 51.85 in the month ending Dec. 21 from 39.38 in the month before, showing a 31.67% increase.

Research & Markets Expects Growth in Construction Industry

A report by Research & Markets expects Iran’s construction industry to have expanded by 1.8% in 2021, registering an annual average growth of 3.3% between 2022 and 2025.

This will be supported by investments in the energy, oil and gas, petrochemicals, infrastructure and industrial sectors. In an effort to boost the economy and improve infrastructure, the Iranian government aims to complete over 3,900 km of new railroads and roads by March 2022.

The outbreak of the coronavirus pandemic, coupled with the steep decline in oil and gas prices, has weighed on the Iranian economy, which was already battered by the US sanctions that curb oil and gas exports, which are crucial for government revenues.

The economic weakness amid the Covid-19 pandemic and the US sanctions, coupled with the depreciation of the currency and rising inflation, further weighed on the construction industry's performance.

As a result of the sanctions, oil revenue in the country fell drastically. Since early 2018, the value of the Iranian rial has fallen significantly, and inflation in the country has reached new highs.

In a positive development, however, the change in the US administration is expected to relieve tensions between the US and Iran, as the new US president, Joe Biden, is in favor of returning to the Iranian nuclear deal, which was previously abandoned in 2018. Despite this optimism, there have been delays in negotiation talks, as both countries wait for the other party to fulfill certain conditions.

The construction sector grew by 7% in the first half of the current fiscal year (March 21-Sept. 22) compared with last year’s corresponding period, latest data released by the Statistical Center of Iran show.

SCI had put the sector’s growth in fiscal 2020-21 at 6.3%. Its GDP accounted for 4.5% of total gross domestic product in H1.

Each year, 100 million square meters of buildings are constructed in Iran’s urban and rural areas, according to Ahmad Khorram, the head of Construction Engineering Organization.

“Engineering services account for 5-8% of construction costs in the world whereas in Iran they barely exceed 1%,” he was quoted as saying by IRIB News.

The per square meter price of homes in Iran is 500% more than their construction costs, says Mahmoud Mahmoudzadeh, a former deputy minister of roads and urban development.

“The only reason behind the wide gap between construction costs and market prices of homes is the fact that housing is considered an investment vehicle.”