“Decline in construction and industries is hurting the market of wires and cables”
CEO of Khorasan Electric Industrial Company:

“Decline in construction and industries is hurting the market of wires and cables”

Demand for power cables (in both general applications and infrastructure) has grown owing to the electrification of industries, population growth, and technological advances. Raw materials required for the production of wires and cables (made up of 95% copper and petrochemical materials) are readily available in Iran; the wires and cables industry has had significant development. Other than some special-purpose wires and cables (which are not economically feasible to produce due to limited demand), all demand is met through domestic production. But the industry is dealing with issues that might jeopardize its future. Our guest in this Insider Talk is Mohammad AfsharNejad, CEO of Khorasan Electric Industrial Company.

What types of wires and cables does your company produce?

We produce different types of LV cables in all sizes, with cross-sections ranging from 0.5 mm2 to 500 mm2, with any insulation desired by consumers. Put another way, our company can produce all types of LV cables with all types of insulation according to our customers’ needs, including fireproof and halogen-free cables.

Who are typical customers and consumers of power cables and wires?

LV and MV cables are used in industrial applications to feed power to electrical machinery and equipment in factories. Such applications are distinct from those of HV cables, which are mostly used in big government projects. In such cases, cash return is always a challenge; government organizations are not punctual on payment. But there is a wide variety of LV and MV cables. These are used in buildings, construction projects, and emerging industries.

What challenges are producers dealing with currently?

Iran is rich in copper reserves and petrochemical products, which constitute 95% of raw materials required for the production of wires and cables. However, it is increasingly hard to buy raw materials due to mismanagement of distribution, especially after the Joint Comprehensive Plan of Action (JCPOA). The export of metals was no longer restricted by sanctions; the price of copper and petrochemicals was thrown out of balance by fluctuations in the dollar index; these prices are defined by the government on the stock exchange, while export is performed with actual dollar rates. Consequently, there was supply shortfall for domestic consumers. Brokers took advantage of the chaos, whereas producers were facing issues of raw material availability, leading to losses as a result.

Raw materials represent 75%-85% of production costs, thus making the industry less profitable. Increases in the price of raw materials do not correspond with those of wires and cables. Therefore, prolonged payments seriously hurt producers.

Additionally, the recession over the past few years has led to declines in buildings and construction projects as well as slowdown in industrial investment; this has put pressure on demand for wires and cables. The increase in the dollar index has resulted in higher prices of industrial products. Moreover, the disproportionate growth of housing prices relative to the loan ceilings of banks has further damaged demand for wires and cables. Beyond that, the stagnation of construction projects and industries paints a not so bright outlook for the wires and cables industry. Incentive policies by the government can definitely mean a lot in making exports possible again and taking advantage of the opportunities that will be created once regional countries put an end to disputes on investing in Iran. We hope that the government will offer incentives to Iranian companies for rebuilding war-stricken Iraq and Syria in order to rise above Turkey and China in terms of manufacturing and exports.

How is the price of wires and cables affected by changes in raw materials prices such as copper and insulation materials?

The amount of copper used for the production of wires and cables varies depending on the type. Generally speaking, copper represents about 50%-55% of total weight of LV and MV cables, but this is variable. In round stranded cables, for instance, the plastic outweighs the copper conductor, while 90% of solid, single-stranded power cables is made up of copper. There is a huge difference between price of polymer granules (8,000 tomans/kg) and that of copper (60,000 tomans/kg); thus, changes in the price of copper have greater weight.

How do you meet your need for insulation materials?

We are one of the few companies who have a granule production plant. The production of granules requires a whole different set of knowledge and experience than that of wires and cables, thus not all companies can produce them. We produce all the granule that we need, but we don’t produce enough to sell to other companies.

How do knockoffs and substandard products impact the market?

These products have unrealistic prices. The production of high-quality wires and cables is costly because of the pure copper and the insulation material. Knockoffs prevent major producers from reasonably pricing their products; they can’t sell their high-quality products at the prices set by knockoffs. Relevant organizations must implement policies to stop the production of fake goods so that companies can continue on their regular course.

There have been attempts to stop substandard producers, but to no avail. These factories are often hard to reach, but even then they face small fines. Aluminum wires with a thin layer of copper have commonly been sold as copper wires over the past two years. The use of aluminum wires for lighting and household power is against the law; in addition to pushing up power consumption, they have a risk of fire in homes.

Are you currently operating at full capacity?

No. Most producers are operating below their real capacities. Khorasan Electric Industrial Company has three full-staff working shifts with good annual output, but we have greater capacity for production. This is due to a number of reasons, including weak demands and shortage of raw materials. If Iranian producers receive the same support as those in Turkey and China, they can have great achievements on international markets. China and Turkey offer incentive policies and export awards to exporters of wires and cables. We obviously can’t compete with them in regional markets when we have to buy our raw materials at global prices. About 20 years ago, copper was sold in Iran at lower prices than the global markets; black marketeers smuggled copper out of Iran as scrap or trays sold as artisanal art. The same thing happened in 2018 when copper had to be sold at the NIMA dollar rate.

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