“Aluminum import tariff codes being taken advantage of is a serious issue”
CEO of Navard Aluminium:

“Aluminum import tariff codes being taken advantage of is a serious issue”

Navard Aluminium was established in 1972 as a producer of aluminum sheets and coils; it was launched in 1985. A leading producer in the aluminum industry, the company gradually developed its products to include different thicknesses and alloys. It now produces sheets, strips, and coils; its products are used in a wide range of industries including construction, automotive, petrochemicals, petroleum, HVAC, electrical, and home appliances. Its products contain alloys 1xxx, 3xxx, 4xxx, 5xxx, 7xxx, and 8xxx to accommodate its customers’ needs. The variety of the company’s products is owing to plants and casting furnaces in the production process. It currently controls 90% of domestic markets of aluminum sheets and is recognized as a high-quality brand with a great history. We are discussing the problems and challenges of production and the outlook of the industry; our guest in this Insider Talk is Hasan Ali Rezaei Moqadam, CEO of Navard Aluminium. He has 25 years of experience as financial manager and has been the CEO of Navard Aluminium for seven years.

How do you evaluate the market of aluminum sheets in Iran? How is it different relative to the previous years?

Sanctions caused issues for industries, but after the nuclear talks things improved and construction projects developed. Investments made in the construction industry boosted the market of aluminum products, including flat-rolled products. But when Trump withdrew from the deal, all industries had problems; construction came to a halt due to lower GDP, and finally the market shrank.

Following the nuclear talks, construction projects grew in 2015 and 2016; we ramped up production to meet domestic demand. In 2017, we hit a high of 15.2 thousand tonnes. This suggests that having good relations with the world and neighboring countries without sanctions can increase investments in the country and boost the markets of all industries.

As the US withdrew from the deal and sanctions returned increasingly stronger, our output declined 60% year on year in 2018 to 10.2 thousand tonnes.

But aside from these problems, there was a bright side to the sanctions. For instance, some industries that imported their demands turned their attention to domestic products as importing got more difficult.

What are the challenges of the market of aluminum sheets and plates?

Foreign exchange is a major issue for all industries. Except for a short time, Iran always had multiple exchange rates for the dollar during sanctions. This caused problems for producers, because it is in essence a kind of economic rent. When production costs go up, some producers import raw materials for the lower dollar rates instead of buying them domestically. The point is that as importing got more difficult, consumers turned away from foreign products towards domestic products. In fact, all industrial managers are seeking to improve the market of Iranian products. A country with a good GDP can use its income to expand and develop industries, construction, and infrastructures such as roads, ports, wharfs, telecommunications, transportation, etc.

You might be able to sustain some industries with limited markets and low incomes that are barely enough for day-to-day living, but you cannot create a high-tech industry with great technical knowledge, production capacity, and production growth that can compete on global markets.

We are hoping for a better environment where Iranian producers have good relations with their neighboring countries and the world in order to maximize national GDP, increase investments and developments, and attract foreign investment to finally create more jobs.

What is your forecast for the future of aluminum sheets and plates?

The development of the aluminum industry is tied to national growth and development. Iran had negative economic growth in 2018, which experts believe will be even worse in 2019. The aluminum industry, as well as all other industries, will be affected.

But we will do our best to use the existing opportunities as well as we can. The least we can do is to not let our production decline relative to last year, and even ramp up production if possible.

Given the issues involved in the availability of unwrought aluminum, can scrap be used to produce sheets?

Aluminum scrap comes in different alloy compositions. Since it is difficult to perform precise chemical analysis on scrap, it cannot be used for special applications; but scrap can conveniently be used for some general-purpose products.

Producers that have alloying equipment can use scrap in their production process. Those without such equipment, labs, and quantumeter to analyze their raw materials and products, use unwrought aluminum with certain alloy elements. This is rather easy, but they can’t even use their own scrap; we use our scrap to produce desired alloy products for our customers.

How does the type of alloy affect the price of aluminum sheets?

Alloys used in aluminum sheets depend on the mechanical properties needed for the application, such as hardness and ductility. Pure aluminum cannot be used for many applications. Thus, pure unwrought aluminum is alloyed.

To suit our customers’ needs, we add alloys such as copper, chrome, manganese, silicon, zinc, and iron. Each of these elements has a different price, which affects the price of sheets. If, for instance, a significant amount of chrome is used for a certain alloy, then the final price will be higher. Making aluminum alloys with copper, chrome, or zinc increases the price between five and 20 thousand tomans per kg.

Moreover, some applications need certain levels of softness or hardness, which will require special processes such as rolling and annealing. Some products need to be washed with expensive solutions. The combination of all these determines the price of end products.

Why did Iran’s export of aluminum sheets and plates to Iraq decline? Has Iran entered the markets of other countries?

Investors need security in order to plan for the future. First the domestic market must be developed, which depends on construction projects. The next step is to enter global markets.

To be successful, producers should be able to export 70% of their products and sell 30% in domestic markets. We need to have relations with other countries around the world in order to export our products and boost our competitiveness by expanding our development projects and production capacity. We have a capacity of 20-30 thousand tonnes, but we need to expand it to 100 thousand tonnes so that we can sell 20-30 thousand tonnes domestically and export 70 thousand tonnes. The country needs foreign relations.

We can only export when we have the environment for investment, planning, and development. With uncertainties about the future and what might happen in infrastructure, petrochemicals, and oil production, we cannot properly plan for production development. There is no investment security and Iran might not improve its foreign relations so that we can have better exports development.

Currently, we export only to Iraq and Afghanistan. Iraq does not have a full-fledged banking system, so they used to pay cash (rials or dollars). But their problems have mounted and now we can’t have cash transactions.

We inevitably received payments in rials over the past few years, and when the directive to return foreign exchange earnings was issued in early 1397 (2018-19) the government and the central bank said that exporters did not need to return their earnings from exports to Iraq and Afghanistan, which was done with the rial.

In November 2018, the central bank announced that all exports had to return foreign exchange. We had to stop exports to Iraq because we were receiving rials, not dollars. We are currently waiting to see what will happen. We are looking for other solutions, such as importing raw materials, in order to export without returning foreign exchange. Our annual export of one to two thousand tonnes to Iraq has ended, and it is very hard for us.

Does Iran have imports of aluminum sheets? How are imported sheets different from domestic products?

Given the tightness of foreign exchange, imports of aluminum sheets have practically stopped. Only some companies with demands for special types of sheets that are not produced domestically import aluminum sheets. The production of soda cans is one such industry; the alloy sheets needed are not produced in Iran, so they are imported from China and Japan.

The Trade Promotion Organization of Iran has defined over 14 tariff codes for aluminum sheets and plates, with import duties between 5% and 26%. What do you think of these codes and their import duties?

These tariff codes have led to problems on multiple levels; they are not very specific. Some codes are for special products that are not produced domestically, so they have lower duties in order to support domestic consumers who use them for other products. But sometimes tariff codes of aluminum sheets with lower import duties are used as codes for other types of sheets that are produced domestically and have high import duties. We have already discussed this issue with experts and managers of the Ministry of Mine, Trade, and Industry and they have taken some actions, but domestically-produced types of aluminum sheets can still be imported.

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