Investment Opportunities for the PU Industry in the Islamic Republic of Iran

“Investment Opportunities for the Polyurethanes Industry in the Islamic Republic of Iran” by Labyrinth Research and Markets Ltd. is a new multi-client study, based on in-depth research and interviews in the PU industry. Compiled by specialists in the PU market, it is probably the most comprehensive review of the industry in Iran. The information presented will be useful to managers working in Iran, buyers sourcing parts from Iran, suppliers of raw materials and equipment, strategic planners and companies considering investing in Iran.

Although the current status of the Iranian PU industry is in decline due to sanctions, the potential to develop the country into a regional hub, once economic and financial restrictions are lifted is significant. Overall, Iran has the potential to more than double its use of polyurethanes and equal Turkey’s consumption. Iran is known for its oil and petrochemical industry but in other respects is comparable to Turkey in size and industrial capability. Recent estimates suggest that PU production declined during the current Iranian year to just over 125,000 t, but with investment production could easily reach 200,000 t within the next 4 – 5 years.

“Overall, the Iranian economy can be seen as similar to the Turkish economy plus oil but minus political stability. If Iran can be reintegrated into the world economy and stability restored, it is possible that Iran’s polyurethane demand can easily double to approach that of Turkey,” Angela Austin, Director of Labyrinth Research & Markets Ltd, explained.

Unlike other ‘frontier economies’, Iran already has sufficient manufacturing capacity in most sectors from the pre-sanction era to meet demand in the near future. There are at least 70 – 80 polyurethane processors established in Iran—“ready to go.” The main difficulty facing the PU industry is access to money for working capital and raw materials. This will be eased with the lifting of sanctions in 2016 and investors will be able to supply financing until the economy can start functioning on a more normal basis. Opportunities exist for the full range of PU raw materials and equipment in almost all market segments. Iran would also benefit from foreign technology to continuously improve production economics and quality. One consequence of the sanctions is that Asian—notably Chinese and Korean—PU suppliers are well implanted in Iran as most Western and Japanese suppliers left under the US lead sanctions against Iran’s nuclear programme.

The report gives three strategic drivers to consider Iran as a growth market,

• Political: The international community will actively support the re-integration of the country into the world economy. A strong Iran is required for the future stability of the Middle East region. The agreement on Iran’s peaceful use of nuclear technology provided a key foundation of this policy.
• Economic: Iran will benefit from its own new sources of cash which, if used wisely, can help to reconstruct the economy. Iran has substantial oil and mineral revenues. It has overseas assets that will be released post-sanctions.
• Future opportunities: Iran is attractive because of its domestic market and as a Middle East/ South West Asia manufacturing hub.

These strategic drivers need to be balanced by some important risk factors associated with Iran:

• Regional stability: Maintaining regional political and economic stability
• International support: Iran being welcomed back into world trade
• Income from oil: Concerns on the pricing of hydrocarbons cast doubt on the size of potential revenues streams
• Structural reforms: Iran is on a long economic journey as an Islamic State
• Business environment: Iran lies in the bottom quartile of most indices on corruption

Overall, the range of economic forecasts for Iran is, naturally, quite large given the uncertainties involved. The World Bank foresees a recovery driven by oil production over the next 2 – 3 years with GDP growth in the range of 5 – 7 %. The Iranian five year plan targets 8 % growth.

For the polyurethanes-related markets, some additional factors to consider are:

• Future raw material advantages: Growth in raw material production in the region will support Iran’s PU industry, especially the Sadara highly integrated production complex in Saudi Arabia belonging to Dow – Saudi Aramco.
• International competition: Asian raw material suppliers, convertors and end users have a strong foothold as they maintained a market presence during the sanctions, benefiting from the exit of Western companies. Western companies will, however, try to re-enter Iran.

PU markets which are most likely to benefit in the immediate post-sanctions period include automotive and infrastructure projects relating to oil and gas. In particular, PU will be needed for cryogenic insulation associated with the country’s plans to build new 4 LNG terminals. There is also potential demand for PU binders from the composite wood panel industry as well as demand from the well-established markets of residential and commercial insulation, furniture and bedding, footwear and protective coatings.

The report comprises of 75 pages, 23 tables and a directory of more than 80 companies involved in the Iranian PU industry. Ten appendices provide economic data, further sources of information and a comparison of key indicators between Iran and similar MENA countries—Egypt, Turkey and Saudi Arabia. The report is available from Labyrinth Research & Markets Ltd, priced at GBP 1,000 per PDF copy. Contact:  · Tel. +44 1483 894697