The CEO of Saba Foolad Zagros pointed out: the supply floor of steel ingots in the Commodity Exchange in 1998 was set at 290,000 tons per month; In other words, steelmakers were required to supply 3,600,000 tons of ingots on the stock exchange last year, while only 2,700,000 tons of ingots were traded on the stock exchange. This issue also caused tension in this market. Subsequently, pricing and convulsions occurred in the supply of steel in the commodity exchange. This unhealthy trend also spread to the free market.
Last week, the secretary of the country’s market regulation headquarters stressed that the supply of steel products on the commodity exchange is mandatory. Accordingly, special committees are formed to monitor the supply of products in the commodity exchange on a weekly basis.
Mohammad Reza Kalami, Acting Deputy Minister of Internal Trade of the Ministry of Industry, Mines and Trade, said: To oblige producers to offer their products on the Commodity Exchange, 4 executive strategies will be implemented, which are: They do not observe the supply floor in the stock exchange, not allocating raw materials to the units in case of non-supply of products in the stock exchange and in the last stage introducing the violating units to the Attorney General if the law is not observed.
Officials of the Ministry of Industry, Mines and Trade believe that with the implementation of this strategy, the supply and demand for steel will be adjusted and the prices of steel products in the commodity exchange will continue to decrease. In order to evaluate the evaluation of the mentioned plan, we have talked to the steel industry activists and asked their opinions about it.
*** Looking is problematic
Ali Mohammad Zamani-Esteki, CEO of Saba Foolad Zagros, said about the obligation to supply steel products in the commodity exchange and legal action against violators: We see that the products of the primary links in the steel chain, namely iron ore, concentrate and pellets, are being sold to steelmakers at prices far below world prices, but these same manufacturers are insisting on selling their products at world prices. This different view is also problematic.
*** Coercion is not effective
He added: “We are subject to the law, but I believe that such coercive measures will not be effective; Therefore, solving the problems of this chain should be a priority. Undoubtedly, solving these challenges will have more positive results compared to forcible treatment of companies. In addition, we have experienced such law enforcement over the years, but none of them have been effective.
This activist of the steel industry emphasized: in explaining the disorder of this chain, it should suffice with the example that steel ingots were traded at 9800 Tomans per kilo in the commodity exchange last week, while rebar as the final product with a base price of 9400 Tomans to It was offered on the stock exchange per kilo. These prices indicate a severe downturn in this market; Therefore, an expert mechanism should be put in place to regulate the steel chain market.
Unfortunately, many policy decisions in the Ministry of Industry, Mines and Trade play a key role in exacerbating this situation. In many cases, the view of the authorities has provided the ground for the loss of activity of various steel units, to the point that we even see golden signatures and unique coverages by some trustees. That is, a producer unit buys its raw materials from the stock exchange, but does not offer its final product on the commodity exchange.
He went on to say that the lack of balance between supply and demand is effective in disrupting this market and said: “Part of the price jump in steel and steel products in recent months can be attributed to the imbalance between supply and demand.”
*** Tensions continue
According to statistics published by official sources, last year about 17 million tons of crude steel and 10 million and 200 thousand tons of long sections were produced in the country. 4 million and 800 thousand tons of crude steel have been exported, of which we had a surplus of 2 million tons. Despite the fact that the production of steel ingots far exceeded the domestic demand and even a surplus of supply was recorded for this product, but its sales market was facing a convulsion.
The CEO of Saba Foolad Zagros pointed out: the supply floor of steel ingots in the Commodity Exchange in 1998 was set at 290,000 tons per month; In other words, steelmakers were required to supply 3,600,000 tons of ingots on the stock exchange last year, while only 2,700,000 tons of ingots were traded on the stock exchange. This issue also caused tension in this market. Subsequently, pricing and convulsions occurred in the supply of steel in the commodity exchange. This unhealthy trend also spread to the free market.
Rollers have bought ingots to produce 10 million tons of the final product, but these ingots have been traded in the open market. In such a situation, on the one hand, we face tensions in the formal market, and on the other hand, prices in the formal and informal markets are different. A significant part of these tensions is created as a result of non-compliance with the supply floor by manufacturers.
*** Versa Kala is a way to discover the price
He added: Commodity exchange is a way to discover prices. If the price discovery in the commodity exchange is done correctly, the mentioned problems will not be created.
In the past, private companies producing steel products tended to use commodity exchanges to introduce their products; In other words, the commodity exchange was considered as a large and official signboard to introduce these producers.
In fact, the commodity exchange used to be a tool for selling steel products, but now this tool has become a must. At the same time, failure to sell products on the commodity exchange carries penalties. Undoubtedly, the adoption of incorrect strategies for this chain has led to the mentioned disorders. If the rules and regulations are the same for all manufacturers in different circles, the mentioned challenges will be solved. As if we have a proverb that oppression is justice. But putting pressure on some producers and letting go of others will be stressful, and the result is what we see in the steel market.
*** Extravagance has no end
Seyed Reza Shahrestani, a member of the board of directors of the Association of Steel Producers, said in an interview with Samat: “Unfortunately, we always see excesses in decision-making by officials.” These excesses often pose major challenges to industry. These kinds of approvals are also among these emotional decisions that ultimately affect the activities of producers.
He stressed: The obligation of steel producers to sell their products on the commodity exchange is not justifiable from the perspective of commercial law. A private company cannot and should not be required to sell its products through a specific channel, unless a quota of raw materials is provided to this unit and the said requirement is approved based on this requirement. But if a unit buys the raw materials it needs freely, it must be able to sell it on the open market as well.
*** Growth of non-consumption demand
Rejecting the impact of the steel supply on the inflammation of this market, Shahrestani said: “The turmoil in the steel market has been achieved in the past few months due to the significant growth of the exchange rate.” At various times, we have seen that as the price of the dollar rises, people tend to buy capital goods. Steel products have also become capital goods in the current situation due to easy purchase and easy liquidity. In such a situation, non-consuming demand for steel products is created and creates the ground for imbalance in this market. But the main culprit is the unprecedented growth of the exchange rate, not the supply of producers.
The member of the board of directors of the Association of Steel Producers said: setting the price ceiling for the sale of ingots and steel products in the commodity exchange was another mistake that has shaken the market in the past few months. Ordinary pricing provides the price gap between selling a product on a commodity exchange and the open market, and ultimately creates a rent. In such a situation, any amount of product offered on the commodity exchange has a customer, because buyers can sell the same product at a higher price in the open market.
*** Pricing is wrong
He added: “We also think that buying and selling products from the stock exchange mechanism should be a priority in order to increase the transparency of transactions.” If buying and selling in this market is based on supply and demand, all producers, whether private or public, will be interested in selling their products through this market, but setting a price ceiling will affect the course of the stock market.
Shahrestani further said: “This year, construction and development projects have sharply decreased.” Significant growth in inflation, the prevalence of Covid 19, the intensification and continuation of international sanctions, the reduction of the government’s development budget, etc., have all provided the ground for reducing the demand for steel this year; Therefore, the shortage of steel products in the domestic market does not make sense.
Last year, steel products, when the real demand for these products was much higher than this year, met domestic demand, while a significant portion of these products were exported. Therefore, I believe that the growth of the mentioned demand is unrealistic and has been achieved due to the difference between the prices of steel products in the open market and the commodity exchange. In other words, the inefficiency of the officials and those in charge in the Ministry of Industry, Mines and Trade have had the greatest impact in this area.
*** Concluding remarks
The steel market has been inflamed since the last months of last year, and these tensions have continued despite repeated managerial changes at the Ministry of Industry, Mines and Trade. Accordingly, the policy-makers of this ministry are trying to restore balance to this market with new approvals or intensification of monitoring of previous directives. However, many steel industry activists believe that the misguided strategies that govern the steel chain are the main source of the challenges and inflammation ahead, and that fundamental solutions must be found to address these problems, rather than injuring some manufacturers.
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