The lifting of international sanctions against Iran marks the beginning of a new era. President Rouhani’s economic and diplomatic reforms have brought Iran back into the international community and the country has a unique opportunity for economic expansion.
Much has been said and written about the upstream oil and gas industry in relation to Iran, however the metals and mining sector is also in a unique position to capitalise on opportunities. Foreign direct investment (FDI) inflows halved between 2011 and 2014 as a result of the sanctions, falling to US$ 2.1 billion (0.5% of GDP). The new stream of FDI will bolster economic expansion, with it demand will rise, creating demand for metals and mining.
Meanwhile on the supply side of the story Iran has large reserves of coal, iron ore, copper, lead and zinc. However with years of underinvestment in the sector and large numbers of projects stalled, there still remains huge potential upside. We have looked at some of the potential impacts across the metals and mining value chain in our recent report: Iran: a metals and mining perspective.
Sanctions removal poses both opportunities and challenges for the regional aluminium industry. Over the short-medium term it is a case of opportunities for both primary and semis metal as Iran invests in expanding and refreshing its basic infrastructure. This will benefit demand in power generation and distribution, construction and transportation.
We expect this immediate requirement for metal to be met through imports of primary aluminium and semis, with regional semis producers looking to target the Iranian market aggressively on the back of recent capacity expansions.
Iran currently operates three rolling mills: Aluminium Pars, Navard Aluminium and Hezar Aluminium, with a combined capacity of just over 100kt/a. Product mix at the mills is dominated by less complex alloys such as building sheet, standards and foil with operating rates of 40-60%. There are three primary aluminium smelters in operation at Arak, Bandar Abbas and Hormozgan with a combined capacity of 387kt/a.
The current lack of scale and modern downstream technology will hamper any immediate significant increase in internal semis output. However, we expect local semis producers to start investing in upgrading equipment beyond the next 3-5 years. At the same time, we project firm expansion in Iranian primary capacity which will pose a challenge to the dominance of the GCC smelting industry moving forward.
Iran’s copper demand has disappointed over recent years as the effect of sanctions and lacklustre economic performance have taken their toll. Total Iranian copper consumption stood at 219kt last year; unchanged on the level seen one decade prior. This stagnation is in the context of rampant growth in other countries within the region, such as Saudi Arabia and the UAE.
We currently assume 3-4% per annum growth in Iranian copper consumption over the short-to-medium term. However there remains upside potential to the outlook, given that further expansion of the country's semis industry seems likely.
The lifting of sanctions also raises the possibility that copper mine project development in the country may be accelerated. National Iranian Copper Industries Co (NICICO) has long held ambitious plans to increase total mine production capability from current levels of around 230kt/a to above 700kt/a.
The future of Iranian Aluminium and Copper will depend on attracting foreign investment. Copper and Aluminium are two of the metals we analyse in our recent report Iran: a metals and mining perspective, available for individual purchase and as part of our subscription service. Access the report now for in-depth analysis for the full metals and mining value chain.