Cement industry is an industry in which Iran has a high comparative advantage. The final price of this product is extremely low due to the low prices of energies, plentitude of mines and cheap work force. This, together with the suitable quality of the product compared to competitors in the region has resulted in the attraction of this industry for investment. During the past years, as a result of an increase in the building of residential units and also development projects, the demand for cement has been high. This fact, along with the limited number of cement production units and therefore its low supply level has resulted in the construction of a large number of cement producing factories during the past years and therefore a significant rise in the production of cement in the country (presently, Iran holds the fifth place in the production of cement internationally). Considering the decline in housing constructions and also a reduction in development activities, the demand for cement has diminished and there has been over supply and it is predicted that this trend will persist. With the increase in the supply volume and the reduction in the demand, competition between producers has increased and the price has dropped. Lack of demand has also resulted in the closing of some the furnaces of these companies. If this situation prolongs, it can cause a great loss for these companies and eventually their bankruptcy in the long run. Below, some suggestions for exiting this situation have been suggested:
Currently, 73 cement producing factories are active in Iran and in 1394(March 2015-March 2016) these factories have produced 58.7 million tons of cement and 60.1 million tons of clinker. One of the main markets for these companies is the markets in the Middle East region (especially Afghanistan and Iraq) and if Iran gets the advantages of these markets, it can help to save the industry from the present situation. This region, considering its particular situation has attracted investors for construction and exploitation of cement factories. Countries in this region, based on their conditions, in order to import cement, have put tariffs and etc. In different periods of time. Therefore, considering their situation regarding resources such as gas, electricity, natural resources, etc, and the proximity of some of the Iranian companies to the borders, it is suggested that a part of the shares of these companies be sold to foreign investors (especially investors from neighboring countries) and in return, they undertake the export of these products. This can be attractive for investors from different point of views because of the existence of essential infrastructure and the low cost of energy as well as the high quality of primary materials, which do not exist in the neighboring countries (Iraq and Afghanistan as export targets). These factors result in the suitable quality of Iran’s cement production and also its low price. The other important element is the low price of the shares of this company in comparison to their replacement value which can be attractive for foreign investors. On the other hand, shareholders of these companies (which are by majority large holdings), can invest in industries with higher potential domestically by selling the shares of these companies.
Another recommended solution for Iran’s cement industry is using swap trading. As mentioned earlier, the price of cement is extremely low in Iran, therefore considering the high cost of transportation of this product and lack of economic justification it is suggested that these companies use swap transactions in order to access markets to which direct export is not cost effective.
One of the solutions that can be suggested for this industry is market segmentation, through which companies that are situated close to the border can focus on the export of this product and the domestic market can be dominated by companies located in the center. Moreover, companies can optimize by allocating quotas to the export and the domestic market.
Joint investment of cement companies for the purpose of establishing new applications for cement is another solution. For instance, investment in transforming the technology of using concrete for the construction of roads that is not yet available in Iran can be a new market for these companies.
Bearing in mind that the ownership of many cement producing companies is monopolized by a few holdings, merger and acquisition is not recommended. In addition, closing of some of these production companies that aren’t economically viable is not recommended from social point of view.
In the future articles, some of the data regarding this industry will be investigated.