In a meeting with CEOs of petrochemical companies and capital market officials, Majid Eshqi pointed to the need to reduce feedstock prices demanded by the Planning and Budget Organization in the next budget, saying that the prices need to be cut to protect the profitability of the key industry.
Feedstock prices sold to petrochemical companies is equivalent to the export rate for Iran’s natural gas and set at a maximum 50,000 rials per cubic meter in the March 2022-23 budget.
Based on a planned mechanism, feedstock prices would be less than the rate in the this year’s budget. The PBO says feedstock prices sold to petrochemical firms not be changed in the next budget.
“Under the existing feedstock pricing formula, petrochemical producers would face additional costs to the tune of 3,500 trillion rials ($12 billion)”, Eshqi was quoted as saying by the Securities and Exchange News Agency.
After price adjustments, the feedstock bills petrochemical companies would pay will be cut by 850 trillion rials ($2.9b), which the official said the SEO is trying to reduce further.
Eshqi said the rise in feedstock prices sold to petrochemical firms is largely due to soaring prices of the natural gas in international markets.
The government has decided that feedstock prices for steel and refinery companies be equivalent to 40% of what petrochemical companies pay and at maximum 20,000 rials per cubic meter. The rate for cement markers is 10% of petrochemicals.
In recent days the stock market has been bearish due in part to concerns about the possible rise feedstock prices sold by the government to major steel mills as proposed in the 2022-23 draft budget.
Concerns are driven by the fact that a steep rise in gas price for steel companies would undermine their profitmaking and subsequently impact the price of the key metal in the share market.
The government initially set the same feedstock price for steelmakers and petrochemical units. But the price mentioned in this year’s budget for steelmakers is 30% of the feedstock price considered for petrochemical companies.
Earlier published reports claimed increasing gas prices for steel mills would cut their profit by 240 trillion rials ($800 million) next year.