Only IME Allowed to Sell Steel

EghtesadOnline: The Ministry of Industry has required steel manufacturing companies to sell their products only via the Iran Mercantile Exchange.

News ID: ۷۸۷۱۸۲

20 October 2021

The decision was communicated to provincial offices across the country as a bylaw issued by the mineral department of the ministry, the Securities and Exchange News Agency reported.

IME is a commodities exchange where farm, industrial and petrochemical products are traded via the spot and futures markets.

The bylaw applies to all companies that produce steel ingot or use it as raw material to produce assorted steel products, namely steel billet, blooms, steel slab, steel sheet, steel bar, girder and the likes.

Producers that don’t comply with the new rules will be banned from buying steel ingots from the IME.

The move is in line with efforts to balance the price of steel by increasing supply in the commodity exchange market. The   Industry Minister Reza Fatemi Amin has pledged to regulate steel prices.

Market observers welcomed the decision saying it will help in improving transparency and increase competitiveness in the key sector. In addition, large scale offers of steel is perceived as a better approach to curb rising prices in the domestic market if, and only if, prices are determined by market mechanisms and not unwanted and unhelpful government intervention.

Setting price ceilings in the past has been a highly controversial issue among officials, shareholders, manufacturers and the public at large.

Capital market officials have for long urged the government to stop interfering in the prices of goods produced by listed companies. They argue that such policy is incompatible with competitiveness and free market mechanisms where supply and demand determine prices.

Observers say shareholders get a raw deal due to mandatory prices because it negatively impacts profit margins of listed companies -- a failed system seen time and again in the past.

The Cement Experiment

The ministry in a similar move earlier in the year compelled cement factories to sell their products only at the IME. The decision was aimed to control the chaotic cement market in summer.

Cement offers at the IME gave rise to volatility in the initial weeks but prices stabilized as supply increased. As such, the policy was rated as successful by most observers as the authorities stopped intervening and setting prices.

Steel and cement are key products in Iran and the country is among the top producers of the two construction materials.

Iran was ranked the world’s seventh producer of cement in 2020 by the United States Geological Survey, with an output of 60 million tons. The ranking was unchanged compared to 2019.  Local cement production capacity is 85 million tons, of which 65 million tons is used domestically.

Iranian steel mills produced 17.8 million tons of crude steel in the first seven months of 2021, which was 9.9% higher on the corresponding period a year ago, according to the last report released by the World Steel Association (worldsteel). It ranked Iran as the 10th biggest crude steel producer in the world.