Iranian Steel Traders Welcome Free Market Dynamics

EghtesadOnline: The competitive ceiling for steel prices on the Iranian Mercantile Exchange is to be removed, according to a letter written by Deputy Industries Minister Jafar Sarqeini wrote to Hamed Soltaninejad, chief executive of IME.

News ID: ۷۴۶۰۰۰

12 September 2018

“The prices of steel products on IME from now on are to be equivalent to the average rate of discovery of goods in the last four offers on the market, thus removing the ceiling on commodity trading for steel products,” reads the letter, IRNA reported on Tuesday.

The discovery of new prices will be in accordance with the proposal made by four major steel companies of Khorasan, Khuzestan, Mobarakeh and Esfahan.

Before the letter was issued, the formula used in IME to discover the steel price was based on the 42,000-rial exchange rate for the dollar, with 15% of fluctuation in prices allowed per week, Financial Tribune reported.

Now, with the cap being removed, the price of steel products can move in any direction the market sees fit, which is good news for both suppliers and consumers.

To fully meet the market needs, the supply floor has been raised and popular goods have been added to the supply basket, according to the letter, implying that with the favorable new prices, suppliers will be allowed to offer more products at IME.

Considering the fact that without a price ceiling, producers will no longer incur losses upon domestic sales, the IME might once again gain the favor of suppliers who had recently focused on exporting most of their production.

Earlier in the week, President of Iran Chamber of Commerce, Industries, Mines and Agriculture Gholamhossein Shafei sent a letter to Vice President Es'haq Jahangiri demanding that the defective steel pricing system on Iran Mercantile Exchange be reformed.

The formula used in IME to discover the price of steel is based on the 42,000-rial exchange rate for the dollar, which is in stark opposition to the new monetary policies of the government.

According to Financial Tribune’s sister publication, Donya-e-Eqtesad, the letter included four suggestions aimed at alleviating the damage steel industry has incurred as a result of the faulty policies.

ICCIMA’s four proposals for the government included: lifting the price ceiling for transactions in steel and other metals at IME, screening licenses for smaller units using value added tax declarations and eliminating passive operating licenses, abolishing tax exemptions for exports of primary and secondary steel, copper and aluminum products to increase the attraction of domestic sales and stopping the imposition of  value added tax on steel and copper exports.

The letter published on Tuesday seems to suggest that the ministry is taking the first step proposed by the private sector. The change to the policy will short-circuit middlemen, thus stopping, or at least reducing the profiteering of those who abused the old policy for making undeserved profits.

The news is already receiving positive reactions as Tehran Stock Exchange’s main index, TEDPIX, exceeded the historic margin of 148,000 points in Tuesday trading, with base metals leading the charge, registering a trade volume of 413 million shares and a trade value of $16.01 million.

Iran Fara Bourse followed suit, with its main index, IFX, gaining 9 points to settle at 1,696. The positive effect of base metal producing companies was also substantial on IFX.

Founded in 2006, Iran Mercantile Exchange is a commodities exchange located in Tehran. It trades agricultural, industrial and petrochemical products in the spot and futures markets.

The World Steel Association's latest report shows that Iran is the world’s 11th biggest producer of steel.

Iranian steel mills produced a total of 14.45 million tons of crude steel during the first seven months of the fiscal 2018-19, up 23.6% compared with last year’s corresponding period.

Iran’s July steel output grew 13.2% year-on-year to hit 1.98 million tons, the Brussels-based international trade body for the iron and steel industry said.