The steel market is a very dynamic yet sensitive market. Due to the wide range of actors active in this industry and the conflict of interests in various sectors, conflicts in this industry are an integral part of the supply chain of steel companies. In this memo, we will address the recent disputes between rollers and smelters as an important part of Iran’s steel supply chain. We suggest that you do not miss this note from Artan Press.
*** Repetition of historical mistakes in the steel industry
It may seem very interesting and surprising that history repeats itself in trade, and some strategic mistakes in the industry will be repeated in the coming years. It is enough to go back a little. In 1997, by the mistake of the policymaker, a cathode of copper was offered for 30,000 Tomans per kilogram on the stock exchange, but the people who had bought the copper beat it with a hammer, turned it into scrap, and sold 70,000 Tomans per kilogram of scrap again in the open market. ; This mistake has been repeated this year with the introduction of cheap ingots, creating a conflict between rollers and smelters.
*** Unfavorable present of the rolling market in Iran
Unfortunately, we are in the days when the present is not very favorable. Studies show that steel ingots purchased from commodity exchanges in recent months are either sold on the open market at higher prices or, optimistically, if turned into final products by rollers, mostly to the consumer instead of being offered on the open market at high prices. sold; In other words, the cheap bullion offered on the stock exchange, at the insistence of the policymaker, has poured at least 30% of the rent into the pockets of traders.
*** Create 30% rent in steel chain
It should be noted that steel is a strategic metal and the creation of a 30% rent in its transactions promises 100% inflation in the coming months in the entire steel chain. A big bottleneck will narrow the way for steel trading and pricing in the future, and we will see a lot of inflammation in the steel market.
*** The role of policymakers in the distribution of steel rents
Unfortunately, the policymaker plays his role in the market in a completely contradictory way. In the current situation, there is no sign of support for production in the behavior of steel policymakers. Part of this catastrophe can be seen in reports on the amount and volume of activity of steel production units.
Many steel production units operate at less than half their capacity, most of which are owned by private sector actors; Therefore, the decline in production will lead to the risk of losing many jobs in the country. A significant part of these challenges is due to the intensification of inflammation in the steel market since the beginning of this year, as well as the irrational growth of the ingot sales rate in commodity exchange transactions.
*** The smoke of recklessness to the eyes of rollers
The result of market policies is in the eyes of rollers, who claim that they are deprived of many market advantages and always compare their situation with the steel sector. Rollers suffer from discrimination between different links in the production chain. For many years, smelting units have had special advantages that allow them to reduce their cost.
*** Rollers complain about iron smelting rents
To a large extent, the right can be given to rollers because in their claims they refer to rents in the steel chain, such as adjusting iron ore rates based on world rates or subsidized electricity, water and gas subsidies. The annual macro view is huge, while all rolling mills are legally deprived of these subsidies. It should be noted that the existence of such subsidies is by no means a positive solution and has no benefit for people and consumers. In practice, these subsidies are not transferred to a final consumer pocket.
*** Cadal evaluation of the cost of steel ingots
According to the statistics published by Kudal, the cost of ingots in the first 8 months of this year for various companies and according to energy carriers is estimated at 3800 to 4700 Tomans per kilogram. Of course, in some cases, steelmakers do not accept the rate at issue for ingot production; While the information entered in the Codal system confirms this information.
*** Buy steel ingots higher than the world price
This product was sold in the first 3 months of this year at a price of about 5300 Tomans in the commodity exchange, but since July, the trend of bullion buying and selling equations has changed, to the point that rollers in some cases produce ingots for smelting units even at prices much higher than world prices Bought. This unacceptable price growth was caused by the drop in supply and in the absence of a specific trustee in the steel industry, inflicting irreparable damage on downstream actors.
*** Delay in delivery of rolled steel ingots
But the dissatisfaction of rollers is not limited to providing subsidies to other chains and ignoring their production costs. Receiving the cost of buying ingots in cash from rollers and delivering the product after a period of 3 months is another criticism of the trading process in the steel chain. This action will be to the detriment of downstream industry activists. This was one of the issues that severely affected the bullion price trend last month, and in practice the rollers suffered heavy losses in the shadow of the corona, and to date no law has been enacted to protect them.
*** Staggering growth in steel ingot prices
Under the circumstances, we see the spatial growth of the ingot rate in the downstream steel chain. The main reason for this was clearly stated, and practically the solution was to remove unreasonable subsidies from the entire steel chain, although the problem and the solution are clear, but we still do not see a change in the behavior of policymakers. It can be acknowledged that adequate monitoring of the performance of steelmakers and activists in this chain provides the basis for balancing the ingot rate; Therefore, the main solution to get out of the turmoil in the steel market is to meet the raw material needs of the downstream sector. This chain is interconnected; As a result, meeting the challenge of producers can balance the profits of the chain and end the turmoil.
*** Rent distribution is a real example of self-sanction
A detailed note has already been issued regarding the rent in the steel market, and we assessed the damage of this rent as more effective than the sanctions. In practice, the unbalanced distribution of these rents in the steel chain is a clear example of self-imposed sanctions in the steel industry. The result of this rent is the weakness and severe damage to the downstream parts of the steel market. For example, due to the very cheap price of iron ore, mining units do not have enough income and can not afford development costs. Now, if this trend continues, in the coming years we will see a shortage in the mining sector, which itself will continue to face serious challenges in continuing this activity in this chain.
*** Loss of rental costs in the steel industry
It seems necessary to pay attention to the fact that in the shadow of the rents that have been created in the steel chain over the past years, only a limited part of this chain operates profitably. Under the same conditions, mining units are operating at a minimum profit and rollers are out of profitability and have lost.
*** Destroyed capacity of Iran’s steel rolling field
Unfortunately, the rolling field in Iran is oppressed. The area has a capacity of 30 million tons and can directly create sustainable jobs for 3,500 people. At present, due to the process of supplying raw materials required by these units, half of this capacity is left empty. Production conditions for climbing units have become more difficult in the last one or two years due to the unreasonable and unprecedented growth rate of raw materials, so much so that some climbing units have reduced their production capacity to 30%.
*** Start of loss of steel rolling units
Unfortunately, even production in the rolling sector is no longer economically justified, and it can be argued that rollers have moved away from profitability and taken the path of loss. In particular, the decline in production itself reduces the productivity and profitability of producers’ performance. In fact, production with limited capacity is done only for the purpose of maintaining employment. And this is the biggest damage that can be done to craftsmen and job owners in the industrial sector.
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