“It would be enough for industries if only the government stopped putting a spoke in their wheel”
CEO of Qaem Copper Industries:

“It would be enough for industries if only the government stopped putting a spoke in their wheel”

The economy is dealing with a lot of problems these days, from currency fluctuations to weak demands. The government is expected to step in and support domestic production in order to create jobs and fight against economic problems. The production of copper tubes is one of the industries that can contribute to the economy. For this Insider Talk, we talked to Mohammad Ali Sha’rbaf, the CEO of Qaem Copper Industries, to find out how much support the government gives to the producers in this sector. We will also see how government decisions and policies affect the production of copper tubes.

Could you give us a brief history of copper tube production in Iran?

The production of copper tubes started in Iran after the Revolution. Bahonar Copper Company in Kerman was the first producer; it had imported technology from Outokumpu in Finland. The company bought high-tech machinery to produce copper tubes through extrusion. The company could not meet the extremely strong demand back then; the government decided to import from Europe and Japan, despite massive investments made in Kerman. Outokumpu introduced a new technology a few years later, but Bahonar decided not to employ it. After extensive consultations with the company, we implemented the technology in a production plant with the help of some friends and classmates from the university; Qaem Copper Industries was born in Isfahan. The technology was called cast and roll or continuous casting. It was a better, cheaper process than extrusion with higher utilization. Just as we started, the Finnish company switched to another field of business and we decided to operate alone. Two other companies started producing copper tubes later.

What’s the market like these days?

Despite the problems that industries are dealing with and the dominant economic conditions, our sales have not declined. We have had steady growth over the past few years. In times as these when sanctions are crippling the economy, producers like us are obliged to lift the economy and surmount the obstacles of sanctions. CEOs and managers can contribute by creating more jobs. I believe in the saying “what doesn’t kill you, makes you stronger”. Under these economic circumstances, we had job postings less than a month ago and we are interviewing applicants. The market of copper tubes is booming in Iran. Despite all the work done to develop the country, Iran still has room for improvement to match its great population. Although we had the highest foreign exchange earnings in the last three presidential terms, the country’s infrastructures were not adequately developed. Airports, highways, roads, etc. must be developed proportionate to the population. Our country is richer than it is imagined to be, and its wealth must be used properly. The ban on imports of HVAC really helped our industries; the government does not let anyone import any brand they want from any country. The HVAC industry has a history of 40 years in Iran. There were many HVAC companies in Iran even before China, Korea, Japan, and many other countries. But in the ninth, tenth, and eleventh administrations, HVAC devices were freely imported; the sanctions put an end to imports. We should promote the consumption of Iranian products, starting in homes.

What are some of your problems as a copper tube producer?

One of our most important problems is the availability of raw materials. We need about 180-200 tonnes of copper per week. Owing to their high quality, our products always sell out. We imported our cathode demand from Japan in 1396 (2017-18). Now we need more raw materials with better availability. We turn cathode into added value. Raw material issues intensified when the government passed a directive that allowed exporters not to enter their foreign exchange earnings in the NIMA system with a ceiling of one million euros. By this directive, more exporters were exempt from presenting their earnings and new buyers showed up on the stock market. Another problem is that salaries have almost doubled relative to 2014 or 2015, but the efficiency and output of workers has not increased proportionately, relative to countries such as China and Turkey.

What are some production technologies for copper tubes?

Seamless copper tubes are produced through extrusion, cast and roll, and upcast. Extrusion is becoming almost obsolete, because the product quality cannot be compared with other technologies. Extruded tubes do not have enough precision and quality, so bigger dimensions with less sensitive applications are produced through extrusion. Upcast is a new process, which is more commonly used to produce wirerods than tubes. There are only four production lines using upcast in the world. The process uses vertical upwards continuous casting furnaces; the cast tube continuously and directly passes into drawing and annealing, with no thermodynamic process. The cast and roll process is older than upcast but newer than extrusion. It is the most common process for the production of high-quality copper tubes. It consists of continuous casting and planetary rolling. The output of casting furnaces is chipped to remove the oxide layer; after thermodynamic rolling, it is drawn and then annealed.

How do these technologies differ from one another?

Since thermodynamic rolling is removed in upcast, the tube is different from cast and roll tubes in terms of metallurgical and mechanical properties as well as graining and structure; it does not have the quality required for bending and expanding. Thus, upcast is used less commonly than cast and roll. Qaem Copper Industries is using the latest equipment and machinery made in Europe. We have implemented the latest technology and employed top graduates from esteemed universities to produce copper tubes using the cast and roll technology with global standards; we offer our products on global markets.

What are some problems and concerns in the market of copper tubes?

Copper tubes are produced through the three technologies according to domestic demand. The quality of tubes from these technologies is different; moreover, the utilization rate of producers depends on their management of equipment and machinery. One of the concerns of customers is the durability of copper tubes used in end products. Can the copper tubes outlast the equipment that uses them? Are the tubes that are available on the market different in terms of quality? The lifespan of evaporators and condensers is at least ten years, which means that copper tubes used in these pieces of equipment need to have a minimum lifespan of ten years. Major HVAC producers are fully aware of the difference between brands of copper tubes, but smaller factories cannot distinguish between high-quality copper tubes and low-quality ones. Honest salespeople are obliged to explain the difference to their customers. Products of smaller plants will go on the markets and will be used in non-industrial refrigerators, so their managers need to be informed.

What are some factors that affect the market of copper tubes?

Production costs are the most important factor, which is directly affected by the price of raw materials, i.e. cathode, which is mainly supplied on the IME. Based on data over the past few years, demand is closely correlated to price. Demand mostly depends on market sentiments. The false demand is a result of not production growth, but attempts to maintain capital.

Another major factor is the dramatic downturn in Iran’s economy. A large share of copper tubes is used in products that directly or indirectly relate to the construction industry. Moreover, when producers become financially weak due to high prices of raw materials, the market shrinks and declines. Downstream businesses need government support such as tax relief and low-interest loans to help them with their working capital.

How can the market of copper tubes be improved?

As the curator of the country’s industry, the Ministry of Industry, Mine, and Trade should supervise the provision of raw materials, which is a large part of producers’ concerns.

What is the production capacity of copper tubes?

Iran’s capacity is about 70 thousand tonnes per year, while domestic consumption is about 10-15 thousand tonnes per year, which is forecast to remain without much change in the coming years. Exports average about two thousand tonnes per year. The government does not supervise the number of producers, resulting in surplus capacity. Most producers have a utilization rate of 30% at best. The surplus output can be exported, but that is not possible given the status quo of sanctions against Iran.

How can the government support producers?

I think a real producer does not need government support. We don’t expect anything from the government, only if it stopped putting a spoke in our wheel, that would be enough. Sometimes there are issues for producers that take a lot of their time, energy, and money; it would be enough for us if the government had better control over its organizations. With the experience that we have acquired, we can easily surmount obstacles, but the younger generation might not have such patience and tolerance.

Does the government have any incentives for producers?

Anywhere in the world, governments support producers; if, for instance, a given city has problems of unemployment, the government offers low-interest loans to producers in order to create more jobs. For example, when the German company Clark laid off 300 of its 700 staff in 2003, the mayor invited the manager to ask about the company’s problems; they paid $20 million to the company to help with its financial problems. Iranian producers do not have that kind of support. Yes, the government already has a lot to deal with and we don’t want to make things harder. But they can ask their organizations to not add to producers’ problems. After all, the government is obliged to support domestic industries. Getting loans and funds from banks is a challenge. It is the government that has control over the banking system. When a producer applies for loans, they make it so difficult for him that he will just give up. No business should be discriminated against; traders can get loans much more easily than industrial producers. Regarding exports, we expect better supervision over the quality of goods; Iranian products should not be defaced by low-quality brands.

Can other downstream producers also produce copper tubes?

The production of copper tubes is a capital-intensive industry and it’s different from wirerod production. Wirerod plants can be implemented with only a small capital, but a similar plant for copper tubes takes ten times as much investment capital. In addition to the high cost of machinery, acquiring certificates of compliance (COC) with ASTM and EN standards is a true challenge. Copper tubes are tested for bending, expansion, diameter tolerance, and thickness. Technicians manually bend tubes in order to test their quality; the ones that bend more easily are supposedly of higher quality. All of our major brand consumers always request testing of tubes as well as test qualifications.

How can surplus production be exported?

Production capacity is five times as large as domestic consumption. We need to plan for exports in order to utilize our full capacity. Quality, competitive prices, and payment transactions are crucial aspects of exports. Making transactions with European countries has been extremely difficult. GCC countries are good targets, but there are also problems in trading with them. We hope for better political relations so that we can export to the countries that have demand for our copper tubes. In 2006, we exported to a company in Saudi Arabia that did not previously know of our products; they were stunned by the quality and made a huge order. But the government of Saudi Arabia turned all the tubes into scrap. We currently export to friendly countries. Regarding quality, we are recognized in international markets. We had easier trade with Turkey before it increased customs duties from 1.3% to 4.8%; we had to lower our prices 3% in order to stay in the market.

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