Iranian Stocks continue Two-Year Slump

Oil and gas as well as petrochemicals dominate equity markets. Jointly, these sectors account for 38% of total market capitalization. They are followed by metals and minerals as well as the financial sector, which respectively account for 20% and 16% of market capitalization. Hence, any jitters in these sectors quickly rattle the market as a whole.

Among the many uncertainties, mining royalties, which have always been a subject of heated debate in the country, are weighing down the important mining sector. This industry has already been severely hit by China’s economic slowdown and the sanctions on Iran. Now, there are increasingly loud calls for a cut in the current 25% mining royalty, even though this would diminish the revenues of the government, which is already reeling from tumbling oil prices.

About $550 million were to be collected in mining royalties in the current Iranian year. However, the amount has been reduced to $90 million following negotiations between parliament and Cabinet officials, said Jafar Sargini, the deputy minister of industries, mining and trade. Of note, the long-term royalty rate has not yet been fixed.

Furthermore, ever-increasing ambiguities regarding feedstock prices are painting a hazy outlook for the significant petrochemical sector and pushing investors to the edge. Major Iranian petrochemical complexes are striving to convince the government to reduce feedstock prices and fix them for a 10-year period — currently 13 cents per cubic meter — in an effort to make the sector much more lucrative for foreign investors and help its performance. Iran is seeking almost $85 billion in foreign investment to overhaul its petrochemical industry. The looming rebound in oil prices along with feedstock price ambiguities are ratcheting up pressure mainly on shareholders.

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