The iron market activist went on to point out the adverse effects of uncertainty for the producer and said: “Stability is the most important issue for the producer and instability deprives the producer of the possibility of planning.
The decline in the price of hardware in the market has accelerated and the lowest prices have been recorded in the last month. Converting liquidity to steel has become a common practice in recent months, and this trend has been reversed.
Brokers and traders often offer lower prices from manufacturers, known in the market literature as sub-sales.
These days, the free market of long steel sections has entered the price reduction phase, so that all types of rebars have returned to the channel of 9,000 Tomans, which is the lowest figure since July 9th. Meanwhile, activists in Tehran’s Shadabad market report that some retailers are under-selling at the same prices, saying that businesses that need liquidity to gain a customer in this stagnant market are willing to under-sell, but larger sellers are hoping for prices to return. Deliveries are their previous sales.
Meanwhile, producers of long steel sections consider the current prices of these products to be very high and believe that the continuation of this price trend in the field of sections does not only lead to the producer’s profit, which leads to the closure of the production process by losing domestic and export markets. Therefore, the government is expected to help reduce the cost and control this market by monitoring the continued supply of ingots.
*** Continuation of production depends on lower prices
Reza Jourabchi is one of the producers of long steel sections. Regarding the consumer market of these products, he told “Dunya-e-Eqtesad”: “In recent weeks and even days, the main buyers of steel sections produced in the country are people who have entered this market with the aim of protecting their liquidity from the effects of inflation.” The producer is bought and sent to the warehouses, and since there is not much demand from the consumer sector, a significant part of these goods remains in the warehouses of traders.
In addition, the export market of long steel sections has been weakened due to rising prices and difficulties in exporting and returning the resulting currency, which has also added to the product surplus in the country’s warehouses. Therefore, given the domestic and export market conditions, it is impossible for the current price trend to continue, and if the price of steel sections does not decrease in accordance with the world rate, the producer will have no choice but to close down by losing the market.
He continued: “Currently, the market of semi-finished products (ingots) and steel sections is in a coma and even real consumers have stopped buying because news such as the return of exporters’ currency with the improvement of the country’s currency conditions and the absence of buyers in the market as a signal to reduce They act on the price and often prefer to decide whether or not to buy the product after a little reflection and the results of these events.
*** Conditions for manufacturers of steel sections
“The producers of these products have reduced their production level, and the main reason for this is the uncertainty of the fate of the raw materials,” Jourabchi said. Currently, the producer is in the uncertainty of implementing or not implementing the orders of the Ministry of Industry, Mines and Trade regarding the supply of ingots in the trading ring of the Commodity Exchange.
If these promises are fulfilled, the price of raw materials for the final product will decrease and the price of the final product should be expected to fall, but if the supply of ingots in the market continues, the final producer, who is facing a shortage of raw materials, has no choice but to compete with his classmates. There will be no purchase of the product, which will lead to an increase in the final price.
The iron market activist went on to point out the adverse effects of uncertainty for the producer and said: “Stability is the most important issue for the producer and instability deprives the producer of the possibility of planning.” Even if the market is going to face price growth, having a clear ceiling will help balance the market, and I hope we can move towards stabilizing the market.
Jourabchi pointed to the negative effects of high prices of long steel sections for the producer and said: “Reducing exports is one of the problems of producers when prices increase.” The price of ingots must reach such a level that the final producer can produce the product according to the world price so that he does not lose his export market.
*** Production rate of steel sections
The amount of production of steel sections in the country was already higher than the level of domestic market needs and the continuation of production depended on the export of these products. But if the price of intermediate materials (ingots) is not reduced, we should expect the closure of long-section steel mills and the unemployment of workers in these complexes due to the loss of the export market due to non-competitive prices.
Regarding the amount of liquidity of iron traders, he said: “Over the past few days, the amount of liquidity to buy long sections of steel has decreased, but this does not necessarily mean a decrease in traders’ liquidity and mainly stems from a decrease in interest in steel trading.” In addition, a significant part of the business that used to buy directly from the manufacturer has gone to the commodity exchange trading ring because they believe that the profit margin in buying from this market is higher than the direct transaction with the manufacturer. As long as the government continues the policy of making a profit for the buyers of the product from the commodity exchange, the free market will be in an unfavorable situation of shortage of buyers.
*** Open export route
The manufacturer of steel sections further pointed to the country’s currency problems and said: “Increasing sanctions and reducing exports of oil and oil products have faced the government with income restrictions, and therefore the authorities have turned to the policy of export encouragement and export route even in the field of products.”
On the other hand, if instead, the raw material was given to the final producer at a competitive price, on the one hand, the production wheel would move within the country, and on the other hand, more currency would be provided for the country.
He continued: “Since the price of ingots and steel products is determined based on the world rate and based on currency, instability in the foreign exchange market has caused the predictable price trend to disappear from steel transactions.” Taking into account the dollar of 22 thousand Tomans and the world price of $ 400 per ton of ingot, the price of each kilogram in the domestic market should be 8,800 Tomans, which is not the case at present, and this shows that this market has grown more than the real rate and should Reduced so that on the one hand exports are profitable for the final producer and on the other hand there is no pressure on the final consumer.
In meetings; As if it has been decided to supply one million tons of ingots per month in the trading ring of the Commodity Exchange, the price of this market will be determined depending on the extent to which this future promise is fulfilled. Adequate supply of ingots will lead to the adjustment of the final product price and again the producer will be able to export the product at a price in accordance with the world rate.
*** Reduction of liquidity of steel sections producer
Majid Saeidian, a producer of long steel sections, told “Dunya-e-Eqtesad” about the current situation in this market: “These days, the concern of supplying raw materials has become the biggest problem of the country’s steel producers.” While the final producer has to buy raw materials (ingots) at a price even higher than the world price, the same product is exported at a much lower price. While the producer is facing the problem of supplying raw materials, it is also under pressure from the market. The budgets for the country’s construction projects have been minimized and there is no boom in private sector construction, and these factors together have deepened the recession in the domestic market of long steel sections.
Currently, the customers of this market are people who want to be safe from the inflation wave of society by converting Rials into goods, and there is no purchase in terms of consumption. In this situation, the increase in the price of steel products produced in the country has caused the producer to lose its export market. Most of Iran’s long steel exports were to neighboring countries, with countries such as Ukraine, China, Oman and Turkey taking over. The above-mentioned cases have negatively affected the future of the industry, and if this situation continues, the difficulties of the producers in this field will increase.
*** High correlation of steel products to exchange rates
He continued: “The final producer has not only benefited from the increase in the price of sections, which has also suffered from this situation, because the price of raw materials has also increased at the same time, and the producer has even reduced its profit.” The raw materials for the production of steel sections are exported and the rate is determined based on the world price, and this also causes a high correlation between the prices of various steel chain products and the exchange rate. The higher the exchange rate, the higher the raw materials produced by climbing factories, and this increases the producer’s need for liquidity.
If last year you had to pay 5 billion tomans to buy a thousand tons of ingots, this year you need 10 billion tomans of liquidity to buy the same amount of product, and this means that the producer is financially weak and the production power is reduced.
The activist of the iron and steel market, regarding the market tension of sections and price ceilings of these products, said: “From the producer’s point of view, we are currently in the price ceiling, and if the dollar rate does not rise and the supply floor in the field of ingots is observed, we should not see another price increase.” But price reduction is entirely dependent on government decisions and policies and how the raw material markets of the final product factories are regulated.
*** Retailers
Mahdiar Ghazi, a Tehran steel market activist, told the world of economics about the market situation of long steel sections: “Contrary to the trend of increasing the price of steel sections in recent weeks, the prices of these products have entered a decreasing phase again in the last week.” The end of this month indicates that on the one hand, the exchange rate has decreased and on the other hand, the supply of the product to the market through the trading ring of the commodity exchange is stable and appropriate, and these cases, along with the recession in the consumer sector, can make this market Control.
But the situation in this market in the coming months depends on the country’s economic conditions and exchange rate fluctuations, as well as the supply of these products.
He continued: “All warehouses in Tehran are full of long steel sections and most of them have high purchases, ie they have bought their goods at a high price. In this situation, construction activity has also decreased and this issue is also due to the demand of the consumer sector in this The market has shrunk and in a situation where the exchange rate has reached a relative stability, unrealistic demand in the market has also decreased, and this has caused some sellers to go under-selling, that is, to offer rates lower than the usual price in the market.
This part of the sellers, due to such things as lack of liquidity, financial commitment and check due date, fear of further price drop, etc., even need money immediately and are willing to sell their product at a cheaper rate than the current market rate. To trade. This sub-sale is a negative signal for the market of the country’s long steel sections these days.
*** Retail
Mahdiar Ghazi continued: “Sub-sales are done by retailers and not wholesalers, because retailers generally have less capital, so for
The buyer buys more than his capital, which means that when the market falls, they have no choice but to sell at a loss and even undersell. But the wholesaler is mostly in a hurr does not bargain for its product. It usually has a significant volume of product in stock and can manage its inventory in a way that sees the least loss.
He continued: “In recent months, a lot of liquidity has entered the iron market in order to maintain the value of money, and with the reduction of steel sections in recent weeks, this liquidity is leaving this market.” Therefore, it is estimated that the price of these products will drop to 9300 Tomans, provided that the dollar exchange rate is stable and the supply of sections in the trading ring of the Commodity Exchange continues, but reducing the price of this product will not be more than this reasonable rate and the market will not easily accept it. Unlike sellers who have little capital and are forced to retaliate because of need, some traders keep their products in the hope of raising prices in the coming months.
The iron market activist said that people in the steel market who have significant liquidity can control the market in terms of price because a significant portion of the product is purchased and stored, thus taking control of the market in terms of price. These people are the main beneficiaries of the market turmoil and they are not only active in the steel sections market, but they are also present in all markets of the country and have the ability to control the market.
*** New and outdated inventory
A steel market expert also told “Dunya-e-Eqtesad” about the condition of steel sections for long sections: “The inventory of steel sections is not much different from the previous months.” While exports to neighboring countries had stalled following the outbreak of the corona, we expected exports to resume to Iraq and Afghanistan, which in turn reduced the stockpile, but current high prices have hampered exports. The current stock of warehouses is still significant and fully covers the needs of the domestic market and even beyond. This high inventory has been one of the reasons for the decline in the price of steel sections in recent weeks.
He continued: “High inventory has caused traders to sell their previous products that they had bought at a lower price for fear of further price drop or quality loss due to the passage of time below the producer price, and these days we are witnessing underselling in the market.” Let’s be. Of course, this kind of sub-sale has existed among traders for a long time, and traders buy a new product after trading the old product, and thus replace their warehouse with a new product.
*** Liquidity situation in the steel market
The steel market expert also said about the liquidity situation in the steel market: “The steel market has always had a high potential for attracting liquidity and the fluctuation of the exchange rate and the overflow of liquidity in this market in recent months also confirms the high potential of this market.” In recent weeks, this market has not faced significant capital inflows or outflows, but some of the market participants these days have decided to withdraw their liquidity from the market and after converting it into cash, they will be temporarily out of the market.
He continued: “The decrease in the price of steel sections that has started in recent weeks is also an example of the results of the outflow of liquidity from this market, and it can even be said that market participants predicted price reductions before foreign exchange market participants and began to withdraw their capital from commodity markets.” . Therefore, due to the downward trend of the dollar exchange rate, which started last week, it is still possible for the price downward trend in the steel section market to continue.
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