Iranian metal packaging is in a downslide
Image: Shutterstock
Vladislav Vorotnikov examines the current state of the industry in Iran
Difficulties in sourcing necessary raw materials due to Western sanctions, price caps imposed by the government and the continuing economic crisis in the country heavily weigh on the Iranian metal packaging industry. The sector’s future remains vague, with little chance of a light at the end of the tunnel.
The Iranian metal packaging industry enjoyed its finest hour in 2017, when 130 canneries in the country manufactured roughly 500 million food cans, the highest ever figure. To a large extent, the growth of the previous couple of years was secured by a long-awaited international trade liberalisation, as the US and EU removed some sanctions following the signing of the so-called nuclear deal in 2015.
Given the dynamics of the past couple of years, Masoud Bakhtiari, then-vice president of the Iranian Canning Industry Syndicate, the biggest union of food canneries in the country, forecasted a production boom, estimating that under an optimistic scenario, the output could soar nearly fourfold, to around two billion units of metal cans per year.
A constituent growth in living standards was projected to fuel this trend, but more importantly, Bakhtiari pointed out that Iranian canneries succeeded in their promotional campaigns aimed at convincing customers that metal is a safe and environmentally friendly packaging.
There is no clarity on whether the ambitious goal was within grasp, but the reality appeared brutal for Iranian metal packagers. In May 2018, US president, Donald Trump, ended US participation in the 2015 nuclear deal, snapping back the US nuclear sanctions. The Iranian metal packaging industry was barred from Western technologies, while raw materials imports were disrupted, as the country began experiencing a catastrophic shortage of foreign exchange currency.
Free fall
There is no concrete statistical data on how the sanctions affected the output of the Iranian metal packaging industry, but the impact was undoubtedly colossal. Since the second half of 2021, Iranian food oil, tomato paste, and canned tuna manufacturers – the largest consumers of metal packaging – began switching from metal cans to plastic and other alternative packaging. In the past couple of years, the metal packaging industry was close to a state of free fall, local press reported, citing market players.
The critical problem was a lack of raw materials, primarily tinplate, explained Mohammad Azad, former head of the Iron Merchants Union. In previous years, Iran primarily relied on tinplate imports, but supplies from abroad ground to a halt, owing to Western sanctions and the downward rally of the Iranian rial. From 2021 to 2022, the Iranian currency lost nearly half its value. As a result, last year’s inflation rate was close to 50%, with food prices jumping faster than the overall inflation.
Currently, Iranian metal packagers source tinplate in Turkey, UAE and China, but businesses lack dollars to pay for the delivered goods.
The Iranian government imposed a multi-laying currency regime to combat national currency fluctuations and keep imports of vital goods running. The country has three exchange rates: the open market rate, the official rate, and the so-called NIMA rate for the market, where Iranian exporters can sell their foreign currency earnings for Iranian rial.
To keep the flow of vital goods running, the Iranian government allows businesses operating in a narrow list of markets to make purchases, taking advantage of a state-subsidised rate. Unfortunately, for the metal packaging industry, tinplate is not included in that list.
One year ago, the Iranian rial was trading at around 300,000 per US dollar, while currently, it stands at 490,000.
Mobarakeh Steel, one of the biggest metal manufacturers in Iran, launched a tinplate production line, but its capacities were not sufficient to meet the entire demand on the domestic market, Azad admitted, suggesting that food companies should have sought alternative solutions to keep their capacities operational.
Some local canneries, however, told the local press that none of the Iranian metal manufacturers had mastered the production of tinplate with the thickness and rigidness necessary to produce food cans.
Canned tuna is a product of social importance in Iran. Image: Vladislav Vorotnikov
Soaring costs hamper production
Occasional reports indicated that the prices of metal cans soared by roughly 80% from 2021 to 2022, though the concrete figures remain unknown.
At the lowest point, the lack of raw materials for metal cans production has driven 105 out of 135 canned tuna factories out of business, Bakhtiari calculated, lambasting the Central Bank policy, which, in his opinion, hindered raw materials import to the country.
As a result, he estimated, annual production of cans in Iran dropped from a pre-crisis peak of 500 million units to only 200 to 300 million units per year. To a degree, the production decline was associated with a slump in consumption. As Bakhtiari stated, a price hike in the canned tuna market hampered its sales on the domestic market. He added that canned tuna is considered a product of strategic importance in Iran, so a drop in demand is frustrating and could entail negative consequences for the nation’s health. Reza Nouraei, a local packaging expert, agreed that, at some point during the crisis, the cost of metal packaging went up so much that the consumption of food traditionally packed in metal was severely impacted. He added that, as a result, some companies switched to alternative options, primarily hollow glass and plastic, though those were hardly more than band-aid solutions.
Price caps add pressure
The Iranian metal packaging industry is tightly linked to the key consumption sectors. The largest tomato paste and canned tuna companies usually run their metal packaging lines to meet the internal demand.
There are signs that the industry partly recovered in 2023, as some factories stopped in the previous two years and reportedly resumed operation. For instance, Mohammad Mokhtaryani, chairman of the Iranian Tomato Paste Committee, estimated tomato paste factories that are in operation at around 50%, also assuming the figure is nearly the same in the canned tuna segment.
On the other hand, it would be too early to say the industry is on the recovery track, as the national economy is far from its best shape.
In the 1402 Iranian year, which began on 21 March 2023, and ends on 20 March 2024, tomato paste manufacturing in the country is barely economically feasible, said Mohammad Mirrazavi, secretary of the Iranian Canning Industry Syndicate. On the one end, the wholesale price of canned tomato paste is limited by price caps imposed by the government to tackle food inflation. On the other, production costs have been seen steadily rising during the past several years, he said.
For instance, 1kg of tomatoes cost canneries around 5500 tomans ($1.3 per the official exchange rate), 80% more than the previous year. Logistics costs jumped by 30% and labour costs by 27%, Mirrazavi said, adding that the picture is similar with metal packaging. In 2022, the industry experienced turbulence due to fluctuations in energy tariffs, though this factor largely winded down recently.
In the meantime, the authorities set the ceiling for tomato paste on the domestic market at 45,000 tomans ($11) per 800g can in July 2022. This figure has remained unchanged ever since.
Unless the prices are revised, smaller factories will be closed, and large factories will be forced to downsize production, Mirrazavi warned. Their bankruptcy would drag down output in the metal packaging segment, especially since companies manufacture metal cans in-house.
In the canned tuna segment, the government permitted a 70% price hike, though it was largely driven by skyrocketing raw fish prices. Again, canning factories can barely make ends meet, according to Mirrazavi.
Metal can production in Iran has dropped from 500 million to only 200-300 million units per year. Image: Vladislav Vorotnikov
Uncertain future
The future of the Iranian metal packaging industry remains obscure, especially since the turbulence in the food market continues. At the end of 2022, Iran saw a 20% to 30% slump in domestic poultry consumption, with demand in the eggs market also on a downward trajectory, a local union of farmers estimated.
This happened after the authorities withdrew revised state-subsidised exchange rate tariffs under which poultry farmers purchase feedstuff. Local press reported that falling poultry and meat consumption partly returned food cans to the table of Iranians, though no precise data is available to back this statement.
The general outlook remains largely gloomy as the Iranian economy plunges deeper into crisis. As talks with Western countries on reviving the nuclear accord seem to be a never-ending story, it looks like the Iranian metal packaging industry will have to face the current challenges for the time being.
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