Ashkan Bahrami’s note states: “Since the beginning of this year, along with the increase in the price of the dollar and subsequently the rate of inflation, we have witnessed a sharp increase in the price of steel products In some products, such as rebar, this increase was more than 100%, which led to many protests.
From climbing units to judicial officials and even the president, who mentioned this in a recent meeting with steel and petrochemical producers. By examining the reasons for the skyrocketing prices of steel products in recent months, we can make an accurate forecast of the continuation of this market and have a brief look at the price trends in the coming months.
*** Corona and the global market
As the Corona epidemic spread, many predicted that, as in 2008 and 2009, when the financial crisis erupted, commodity prices would fall sharply in demand and prices. At first, this prediction seemed correct. In some commodities, including steel, prices may have fallen in the first quarter of 2020, but prices began to rise to pre-Cronaian price levels.
For example, the CIS steel ingot price index for Southeast Asian countries fell by about 20 percent to about $ 370 in April from about $ 450 in mid-January, but again rose sharply to about $ 436 in August. . There are several reasons for this market behavior, the most important of which was the decline in production at the same time as the decline in demand from steel producers. Other important reasons were the disruption of the counting and transportation of iron ore in Australia and Brazil (and thus the depletion of raw material stocks) and the implementation of large-scale economic expansion programs in China, which led to a sudden increase in demand for steel products.
*** FOB price of Iranian steel ingots exported
Iran (as the tenth largest producer of steel with 27 million tons of crude steel and exports of about 11 million tons last year) can not behave independently of the world market. Although many believe that despite the lack of dependence of steel production on imports and the government’s extensive energy subsidies for steel production, the pricing of domestic products should not be linked to global markets, major steel producers such as Khuzestan Steel and Isfahan Steel are the largest exporters of ingots. And steel slabs have a different opinion.
Accordingly, the FOB price of Iranian steel ingots exported after falling from about $ 400 in January to $ 320 in April has returned to about $ 400 these days. According to the pricing formula of steel ingots offered in the Iran Commodity Exchange, which is a ratio of the FOB price of export ingots (95% of the FOB price of export ingots to the price of Nima dollars), the increase of about $ 80 per ton in four months must have affected the domestic price. (Adapted from the calculations of Amir Sabbagh, Economic and Investment Development Manager of Imidro)
*** Non-observance of supply floor by units producing steel ingots and slabs
Pursuant to Letter No. 60/112585 dated 01/05/1397 on the subject of communicating the instructions for regulating the market of steel products, it was decided that the factories producing steel ingots and slabs will offer a certain percentage of their production in the commodity exchange; Otherwise they will not be allowed to export. Also, the rolling units that bought these products had to offer between 60 and 75% of it on the commodity exchange. In practice, however, this issue did not materialize, and after many struggles and the change of the Deputy Minister of Mines and Mining Industries of the Ministry of Industry, Mines and Trade (Jafar Sarghini), this issue was forgotten.
Finally, drip supplies led to the fact that in 1398, for example, only two million and 721 thousand and 219 tons of about 17 million produced ingots (in other words, only 16%) will be offered in the commodity exchange. Considering the export of steel ingots in 2009 (about five million tons), at least eight million tons of ingots produced were traded outside the stock exchange structure, for which there is no specific supervision.
*** Production of billets and blooms
In 1399, according to the statistical report of the Association of Steel Producers, we have witnessed the production of 5 million and 562 thousand tons of billets and blooms in the first five months of the year, the supply of the Iranian Commodity Exchange in the same period was about one million tons (one million and 160 thousand 728 tons)!
This led to an increase in the average price of steel ingots offered on the Iran Commodity Exchange in April of this year, by 42,657 rials per kilo to an average of 72,788 rials in July. Subsequently, the price of steel products, for example, for rebar, increased sharply, and the price of rebar size 14 in Neishabour, while in April it was 6,000 Tomans per kilogram, reached about 11,000 Tomans in July.
*** Rising dollar prices
Undoubtedly, steel is one of the few products that, from its raw materials, from iron ore to its production technology, can all be supplied domestically and is being produced in the country with negligence without foreign dependence, but due to the very high liquidity of this product, the steel market In recent years, it has become known as one of the most attractive speculation markets along with the dollar, coin and even stock markets.
By comparing the increase in the price of the dollar and the price of each kilogram of rebar size 14 of Neishabour factory in the open market, we will notice the very high elasticity of steel products against the increase in the price of the dollar. With the doubling of the dollar price from August 2009 to August 2016, we are also witnessing a doubling of the rebar price. Surprisingly, we see that in the past year, at times like March last year or July of the year
the price of domestic rebar, which has traditionally always been lower than world prices, has been traded even higher than world prices. (The source of the rebar price in the CIS area was Metal Bulletin magazine)
*** Steel market forecast
With the appointment of Mr. Sarghini as the head of the Ministry of Silence, market participants expect a repetition of the previous experience during his presidency, which is evidenced by the market reaction and the relative reduction of prices. (For example, rebar in the open market has decreased from 11,000 tomans per kilogram to about 9,000 tomans per kilogram.)
Also, due to the sharp increase in the supply of steel ingots in the commodity exchange, so that only during two offers on 14 and 21 August, the amount of 170 thousand and 215 tons (equivalent to almost the total supply last month) was offered.
It seems that we are currently witnessing a stabilization or decrease in the prices of various steel products; But with the rise of the dollar in the open market, the dormant steel giant has once again emerged from the ashes, which we have seen prices rise again in recent days; So that the price of Neishabour rebar, size 14, has increased from 9050 Tomans per kilogram in 10 days on the first of September to 10,300 Tomans on Wednesday, 12 September.
*** Ingot pricing formula
Since according to the ingot pricing formula it is as follows: the base price of domestic ingots offered on the stock exchange = 95% (average price of Nima dollars) * (average price of export ingots); Therefore, it is quite logical that with the increase in the price of the dollar or the increase in world steel prices, we will definitely see an increase in the price of steel. With the increase in the price of the US dollar in the open market from 21,000 tomans to more than 24,000 tomans and the subsequent increase in the price of the Nima dollar, prices were also expected to increase.
The declining trend and stability in the capital market in recent days is one of the reasons why economic actors, with a glimpse of the high liquidity of steel products, have entered part of their stray capital into this market and have increased speculative demand; But if, for any reason, positive news spreads in the country’s political space as the US election approaches, it is due to a widespread slump in real demand for steel products, such as in the construction sector, creating a possible negative expectation in this market or stabilizing the exchange rate in numbers. Clearly, it can be predicted that the steel market will see a sharp drop in prices, which requires great caution on the part of economic actors.
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