After three months of consistent and strong growth, the Tehran Stock Exchange cooled down a little in October as sellers outpaced buyers on the market. One of the major reasons behind the rise in the supply of shares was the privatization of 20% of the National Iranian Copper Industries Company (NICIC) in September which was purchased by a consortium of domestic institutional investors all active in the market. Since the deadline for the down payment of that deal was set at the end of October, most of the members of the consortium had to exit other holdings to secure enough liquidity for the $1.2 billion deal. This resulted in a volatile market at times during October when there was an excessive supply of some stocks on the market. Some key sectors are analyzed in more detail below:
The rising price of crude oil and petrochemical products on global markets coupled with the cancellation of the government decision to impose an export tariff on petrochemical goods had a positive impact on the listed petrochemical companies and once again created buying queues for their shares. There was also the announcement of an Initial Public Offering (IPO) of a methanol-producing company which added to the excitement about this sector. Fanavaran Petrochemical, with production capacity of one million tons of methanol per year, will be the first petroleum-related company to be privatized under the recent privatization scheme. The IPO of this company is expected to take place in the coming months. The top gainer in this sector during October was Khark Petrochemical with around a 30% rise in its share price. Khark also produces methanol and has significantly benefited from the recent rise in international methanol prices by around 100%.
Steel and Iron Ore
In mid-October one of the two listed iron ore companies, Golgohar, announced the sale of 280 thousands tons of iron ore on international markets for $130 per ton. This is while this company had forecasted an average price of $62 per ton for the sale of its products this year. This significant rise in the sell price of their iron ore means that the company will most probably double its revenues this year compared to its forecast. In fact the Iron Ore sector was the best performing one during the month of October with its index rising by around 30% to mark its all time high record. In the international arena, the largest global iron ore producers are in negotiations with consumers to raise their wholesale price for 2008. Rising demand from China, the decline in value of the US dollar as well as speculation on the rise of transport costs had left Iranian iron ore producers in a strong bargaining position for negotiating the domestic pricing of their products with the government.
For steel companies as well, October was a strong month thanks to rising prices of cold and hot rolled steel on the Tehran Metal Exchange. Meanwhile, the government offered another one percent of Mobarakeh Steel Complex on the market during October. The shares were sold at a price which was twice the IPO price when 5% of the company shares were first offered in March under the privatization scheme.
Copper and Zinc
The copper and zinc sectors experienced a weak month. Falling global prices of these two commodities resulted in a heavy sell off of their shares on the TSE. The National Iranian Copper Industries Company (NICIC) which experienced a successful privatization and IPO in February and witnessed a return of over 150% is now under heavy selling pressure. As the largest listed company, NICIC's share price decline will have a significant negative impact on the market as a whole and its indices.
The auto manufacturing sector also had a weak month with most listed companies experiencing decline in their volume of trade. The largest companies in this sector, Iran Khodro and Saipa, are now trading at Price to Earning (PE) multiples as low as two. The main reasons behind the lack of interest in this sector are rising costs with little change in automobile prices, market saturation, and gasoline rationing. Prices of steel, labour and parts have all risen in the current Iranian year while the prices of finished vehicles remained mostly unchanged.
Overall the market witnessed an erratic but active month in October with the TSE Price and Dividend Index rising by 0.6 percent. This was recorded after three months of consistent growths of over 6 percent each month. The following chart demonstrates the performance of the two main market indices during the month.
About Turquoise: Turquoise is a boutique investment bank based in Iran with offices in Tehran and London. Turquoise publishes Iran Investment Monthly with the aim of keeping its recipients updated on the latest macroeconomic developments in Iran, providing an in-depth analysis of the Tehran Stock Exchange as well as introducing new financial products and private equity opportunities to potential investors. For more information please visit: www.turquoisepartners.com/iraninvestment
... Payvand News - 12/12/07 ... --