Iranian Coatings Eye Foreign Markets to Buttress Weak Sales

Suffering from waning demand on the domestic market, the Iranian coatings industry has set its sights on the markets of neighboring countries. However, as the industry reportedly relies on older technologies, the prospect of sizeable growth in deliveries to foreign customers looks questionable.

Iran has manufactured an average of 500,000 metric tons of coatings per year during the past few years, according to Seyyed Mohammad Reza Milani, a Tehran-based analyst. The industry could swiftly ramp up production performance since the capacity utilization ratio is relatively low, estimated at only 55% in 2023. However, this is contingent on sufficient demand.

The established capacities exceed 1 million metric tons of coatings production per year, but an increasing share of equipment stands idle.

Milani is optimistic about the potential for foreign sales expansion to improve the industry’s performance. In recent years, Iran has already begun to tap into the opportunities offered by the markets of Afghanistan, Iraq, Turkmenistan, Tajikistan, and Kazakhstan.

“Afghanistan and Iraq have recently kicked off a lot of residential and industrial construction,” Milani said, adding that Iran can benefit from this trend, as both countries are struggling to rebuild their economies following destructive military conflicts.

The coatings market of the Middle East is valued at $15 billion with an annual sale of around 6 billion liters, Milani noted. Approximately 70% of this volume are coatings for construction and decorative works, he added.

Iran’s Export Market for Coatings

Iran saw its coatings exports climb from $98 million in 2019 to $105 million in 2021, the year with the latest available statistical data. In the past few years, the Iranian economy was slapped with Western sanctions, and the authorities put a lot of effort into softening the blow, including by occasionally limiting access to information pertaining to foreign trade to protect supply chains from the sanctions.

Although the Iranian coatings industry has huge export prospects, Milani said that it has yet to unlock its potential.

“Despite the potential of coatings manufacturers, the appropriate quality of manufactured products and the existence of attractive markets in the region, the country’s export is still far from global standards,” Milani noted.

The Iranian coatings market is projected to grow in value from $460.30 million in 2023 to $530.77 million by 2028, Mordor Intelligence, an international think tank, forecasted.

The Iranian coatings industry, like many others, was severely impacted by the COVID-19 pandemic. Most production hubs were forced to shut down, leading to a catastrophic setback for the industry.

Government measures to boost construction activities for the middle-class population and increased exports of Iranian furniture are likely to drive market growth, the analysts assumed, adding that the growing ship-building industry in Iran is also forecasted to offer various opportunities.

However, the US sanctions imposed over the Iranian nuclear program will likely hamper the industry’s growth in the long run, Mordor Intelligence stated.

Vicious Circle

A big question, however, is whether the Iranian coatings industry, in its current state, can offer competitive products.

According to Shahram Yazdi, managing director of the Water-Based Paint Training courses, a Tehran-based training program, being barred from Western technologies for more than a decade has clearly affected the technical conditions of the key players in the field.

“Like most other industries, the Iranian coatings sector has faced many restrictions in scientific and technical relations on the world market during the 12 years of sanctions and consequently has remained isolated from the world’s technological developments,” Yazdi noted.

One day, this will change, with Iranian products again landing on foreign markets and foreign competitors setting their feet on Iranian soil, Yazdi said.

Sivash Sadeghi, a top manager of a prominent Iranian coatings manufacturer, agreed that the quality of Iranian coatings is not yet comparable with global standards.

“While the world is going through the fourth wave of the industrial revolution, the technical conditions of the Iranian coatings industry leave a lot to be desired,” Sadeghi stated.

The Iranian coatings manufacturers are caught in a vicious circle of weak sales and a lack of money for modernization, both of which worsen each other.

“A switch to modern equipment and modern technology in the country requires large expenses and investments,” Sadeghi said, pointing to the impact of inflation and the cost-of-living crisis in Iran, which hurt the population’s purchasing power and undermined the demand for the coatings market, particularly in the premium segment.

Yazdi noted that the average quality of Iranian coatings is not yet at a high level, arguing that the main problem is not a lack of access to imported raw materials or a technological base but “public education and insufficient technical knowledge” among the majority of coatings manufacturers.

Export is not going to be an easy answer to the Iranian coatings industry’s currency predicament, Sadeghi said. Western sanctions have essentially barred the way for Iranian coatings abroad, and rabid inflation is also killing any competitive advantages the Iranian industry can have, he added.

A Turning Point

Iran still has a chance to give a second breath to its coatings industry, but the authorities might have no time to waste, market players believe.

Despite the challenges, the Iranian coatings industry has some competitive advantages that it can leverage for growth. These include reasonable labor and energy costs, which can help the industry maintain competitive pricing. Additionally, the industry benefits from a well-established raw material base, which has expanded in the past decade, providing a solid foundation for production.

What the Iranian coatings industry needs is a comprehensive industry development program which will prioritize the production of water-based coatings, Yazdi stressed. 

“If Iran wants to gain a new position in the coatings market of the region and the world and also maintain its current positions, it must have a new plan to ramp up water-based coatings production,” Yazdi indicated.

Mohammad Reza Mousavi Esfahani, CEO of Kimiagaran Chemical Industries Company, a major coatings manufacturer, in turn, noted there are still problems that need to be addressed in terms of the raw material supply.

“The lack of documented and detailed planning for the supply of styrene and terephthalic acid – two important raw materials for coatings production – as well as the fluctuation of exchange rates and price instability, are among the key challenges the Iranian coatings factories have to face,” Esfahani said.

Dependence on imports of certain raw materials is a matter of life and death for the Iranian coatings factories.

In response to Western sanctions, Iran initiated a foreign currency rationing system for trade and industry. This policy, which became particularly tense in 2023, reportedly failed to meet the critical needs of the coatings industry.

Occasional reports indicated the lack of necessary imported inputs led some industrial facilities in the country to outages, though it is unclear to what extent this problem concerned coatings manufacturers.

Exports don’t help coatings manufacturers deal with the crisis, as traders have long been mandated to sell their export earnings to the central bank at prices lower than free market rates.

Market players believe the rationing system must be abandoned or at least changed so that it no longer poses a threat to coatings companies.

The companies believe the export development push has a chance to succeed, but this would require a stable and predictable business environment. Esfahani added that the Iranian coatings industry could leverage its cultural and religious ties in the Middle East and restore trade relations with some of its neighbors to improve trade dynamics.