Three major steel companies, namely Mobarakeh Steel, Khuzestan Steel and Hormozgan Steel, are the main producers of slabs in the country. This product has limited applicants.
Accordingly, slab transactions have been out of the trading ring of the Commodity Exchange since 97, and it was decided that this transaction should be done between the buyer and the seller. Since the beginning of this year, with the intensification of international restrictions, the import of steel sheets to the country has almost stopped. Under such conditions, the pressure due to the lack of sheet was transferred to the climbing units and then to the slab producing units.
*** Unprecedented growth in sheet prices
Meanwhile, some rollers are operating at low capacities, mainly due to a shortage of raw materials, to the point where we have seen an unprecedented rise in sheet prices in recent months. In order to control the mentioned conditions, the market regulation headquarters also determined the supply floor for the producers of the country’s slabs and required them to trade in the trading ring of the commodity exchange.
It is worth mentioning that sheet manufacturers will continue to be required to offer their sheets in the commodity exchange. However, the supply of the slab was not purchased and was not welcomed.
We have talked to the activists of these industries and markets to investigate the reasons for the lack of buyers. There are several reasons for this rejection. First, slab-consuming companies often face liquidity problems.
Of course, to solve this problem, it is possible to buy slabs by a specific intermediary from the climbing company and resell it to a specific manufacturer. In addition, according to the directive of the Market Regulation Working Group, climbing companies that have purchased slabs from the Commodity Exchange must supply hot rolled coils to the Commodity Exchange within a month, equivalent to 95% of the slabs received. Rollers, meanwhile, believe the base price of hot-rolled sheets on the commodity exchange is lower than the cost of the raw materials they buy.
In this regard, some informed sources also believe that the lack of buyers for the slabs offered on the commodity exchange is due to an engineered action, ie producers and consumers tend to return the flow of sales of this product to the previous state and therefore buy from the stock exchange. they do not.
*** Opponents of transparency
Mohammad Etebari, a market expert, said in an interview with Samat: Slab transactions were transferred out of the commodity exchange in 1997, so the transactions of this steel product were done in a non-transparent manner and it was not possible to fully trace sheet producers.
He added: “In a situation where the market is facing a significant reduction in steel sheets, slab transactions have also been considered and the market regulation headquarters has determined the supply floor and required slab manufacturers to trade in the trading ring of the commodity exchange and also require sheet supply.” Has produced in the commodity exchange.
However, in recent weeks we have seen that despite the supply of slabs in the commodity exchange, this product was not purchased. Explaining the reasons for the lack of buyers for slabs, Etebari said: “Lack of liquidity is one of the main reasons for the lack of demand to buy slabs from the commodity exchange.” For example, units such as Kavian Steel and Gilan Steel, which buy slabs and produce sheets, do not have enough cash to buy sheets.
These units often operate on a fee basis due to this lack of liquidity; That is, intermediary companies buy slabs from their manufacturers, provide them to these units, and receive sheets instead of slabs. In this way, production and workflow continue in these collections. In addition, part of the vacancy capacity of sheet production units is filled; Therefore, lack of liquidity should be considered as one of the main reasons for the lack of demand for slabs in commodity exchange transactions.
*** Buy slabs directly from the commodity exchange
The market activist said that in the purchase of intermediaries, these producers are given time to pay for slabs, but in direct purchases from the commodity exchange, such time is not given.
Of course, in the purchase from the commodity exchange, a deliberate arrangement has been made that a intermediary company can take on the mission of buying slabs from the production units. In such cases, the companies producing and consuming the product must be identified and the production units will have time to provide the liquidity they need on the production route.
The market activist emphasized that part of this reluctance to buy slabs should be attributed to the coordination between the producers and consumers of this product and the kind of supply and demand engineering and the desire to return to the previous conditions.
He added: “Slab buyers are looking for long-term or long-term purchase; Therefore, selling slabs on a temporary basis in the commodity exchange is another solution that can be considered. But often there is no good relationship between sheet and slab manufacturers; This means that most slab makers prefer to sell their product through an intermediary and get paid for it in cash.
Unfortunately, some sheet production units are currently facing management problems and manufacturers prefer not to be in direct contract with them. It is as if they do not have enough guarantees for long-term purchases, but intermediaries usually accept this risk and receive the necessary guarantees according to their type of activity. Of course, in the discussion of the re-entry of slabs into the commodity exchange, the issue of transparency is also raised, although experience has shown that no one is willing to buy slabs in a transparent format.
*** The need for interaction between producers
Seyed Reza Shahrestani, a member of the board of directors of the Steel Producers Association, said: Mobarakeh Steel, Khuzestan Steel and Hormozgan Steel are the main producers of slabs in the country. In the meantime, other small units They produce slabs, but most of these units produce their own steel sheets and produce slabs for their own use. The amount of slab that enters the market annually is estimated at 2.5 to 3 million tons.
He further considered the strategy of offering slabs in the commodity exchange correct and announced his agreement with the obligation of the producers of this steel product in the commodity exchange and added: “Currently, there is a need for slabs in the domestic market; Therefore, its export must be stopped, because this measure will further the economic benefit of the country.
Shahrestani said: “For some time now, there has been a significant price difference between the price of steel sheets offered in the commodity exchange and the open market, and this inflammation has opened its way to the slab market as a raw material for sheet production.” Currently, some steel sheet production units operate with a capacity far below their nominal capacity, and if these units have sufficient raw materials, part of the shortage of sheets in the country will be compensated.
In addition, with the completion of the value chain, many other job opportunities will be created and ultimately have a general benefit for the country.
*** Request to increase slab production
This member of the board of directors of the Steel Manufacturers Association added: “Meanwhile, slab production units that have the capacity to produce ingots and slabs simultaneously, are expected to devote all their production capacity to the production of slabs.” If the entire slab produced in the country reaches domestic consumption and at the same time, the weaknesses of the optimization system are eliminated, there is a possibility of returning the balance to this market.
He stressed: “Unfortunately, many units that are members of the Optimization System are not real producers.” As a result, part of the demand for sheet metal is unrealistic, and this demand sets the stage for inflammation throughout the chain.
In the end, Shahrestani considered creating a constructive interaction between slab producers and rollers as a solution to eliminate these inflammations and emphasized: the government should provide the ground for establishing this interaction in order to cut the intermediaries out of this market.
*** Concluding remarks
The steel sheet market has been in turmoil since the beginning of this year. The lack of market sheets has inflamed this product and its effects have reached the slabs. Accordingly, the market regulation headquarters, with the aim of increasing the production of steel sheets, obliged the slab manufacturers to offer their products on the commodity exchange, but this supply was not purchased and the market regulation policy failed. Some informed sources attribute this failure to collusion between slab manufacturers and consumers.
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