Lack of confidence in the future and the possibility of continuing this upward trend increased competition for purchases. This price increase continued to show in the buying and selling rates of long steel sections such as rebars and beams. The growth of currency prices in the free market and the consequent increase in the Nimai currency is one of the main reasons for the increase in the price of hardware, because the pricing criterion for ingots is based on the selling rate of export ingots multiplied by the Nimai exchange rate; Therefore, the growth of the exchange rate promises to increase the prices of steel products in the coming weeks and subsequent deliveries.
As a result, buying hardware means making a profit. Under such circumstances, considerable liquidity overflows into the purchase and sale of hardware and increases demand. Thus, the effect of the dollar exchange rate on determining the base rate of iron ore was wrong from the outset, as it paved the way for inflammation in the steel market and significant price growth.
*** Rising prices of steel products
In addition to the growth of the exchange rate, the shortage of steel ingots and its calculated supply has also provided the ground for further growth in steel prices. According to rebar and beam manufacturers, a limited part of the country’s ingot production is offered on the stock exchange; As a result, competition to buy it increases and prices rise. It is natural that with the growth of raw material prices, the cost of production will also increase and we will see an increase in the sales rate of hardware in the market.
These industrial activists emphasize that the decision to require a 60% supply of producers’ ingots in the commodity exchange will not be implemented. It is as if the government does not have the power to reach the steelmakers, and this market is in short supply. Despite all the reasons for the rise in prices, the hardware market is not booming at the moment; This means that prices are so high that the market is in recession. We have talked to the country’s steel industry activists to further investigate the issue.
*** The pricing process of steel ingots is wrong
Ali Mohammad Zamani, CEO of Sabafolad Zagros Company, in an interview with Samat, said that the main reason for the increase in the price of long steel products such as rebar and beams in the past two weeks was the pricing of steel ingots in the Commodity Exchange. Ingots are priced at FOB Persian Gulf and Nimai currency; Therefore, with the growth of the half dollar rate in recent days, the ground has been prepared for the price of long steel products to rise again. He added: “Meanwhile, we are facing restrictions on the supply of ingots by steelmakers.” This shortage of raw material supply should be considered one of the most effective reasons for the growth of rebar and beam prices, as steel products are priced 11% higher than the ingot sales rate.
The CEO of Sabafolad Zagros Company continued: “Price growth is transferred to the final consumer, ie construction projects, because even with a significant increase in the price of these products, the person who started the construction project must continue to build it.” “Sometimes the market sees an annual price increase, and then stability dominates sales,” Zamani once said of the impact of this price increase on producers’ performance. But these days, the country’s economy is facing the phenomenon of momentary inflation. In such circumstances, one can not hope for the future of industrial activity, which will lead to a decrease in industrial activity and investment in production.
*** The government regulates the market
Explaining the role of the government in this situation, the CEO of Sabafolad Zagros Company said: The government is responsible for regulating the market. It seems necessary to pay attention to the fact that market regulation does not mean interference in pricing, but supply and demand conditions must be managed. For example, in a situation where the supply of steel ingots in the country is limited, by regulating the export of this product, the shortage of the domestic market will be eliminated. Undoubtedly, such measures will minimize the tensions in the steel market. He stressed: “As mentioned earlier, the lack of supply of ingots in the past few months has been the main cause of inflammation in this market, because the export of this product has been done out of procedure.”
Although in recent months we have repeatedly seen statistics announcing a decline in steel exports, it should be noted that this decline has been due to steel products. The decline is due to rising raw material prices and the non-competitive nature of steel exports. In such a situation, some of these statistics are used to gain the benefit of a special group of actors in this chain, ie ingot producers. Zamani added: “Given the challenge in question, the government can play a key role in resolving these problems and regulating the market.” There is no doubt that export planning is essential. Of course, at present, steelmakers are expected to offer 60% of their products in the domestic market and plan to export the remaining 40%.
If this requirement is implemented, many shortcomings in this area will be eliminated and the market will be balanced. It is important to note that such actions do not constitute market interference, but only provide the basis for regulating the situation.
*** The steel ingot shortage crisis is serious
Majid Saeidian, CEO of Khorramdasht Takestan Steel, said in an interview with Samat, in response to a question about the reasons for the rise in prices of steel products such as rebar and beams in the past two weeks: “Manufacturers of steel products use ingots and billets as raw materials.” Because a significant portion of the ingot produced in the country is exported, these producers face restrictions on purchasing the raw materials they need in production. In such a situation, with the demand exceeding the supply of steel ingots, Qi
Matt has seen this commodity grow significantly. As a result, manufacturers are forced to sell their final product at a higher price. He added: “In recent months, with the growth of the frame We were faced with the exchange rate against the rial. This is another major reason for the rise in prices. But in the current situation, many ingot producers prefer to sell their product in the world market and benefit from the foreign exchange earnings from it. In such circumstances, it is natural for the domestic market to face restrictions on the supply of ingots and for prices to rise.
*** Raw material shortage crisis
Saeidian said: “The crisis of shortage of raw materials is so serious that rolling stock workers can hardly afford their raw materials.” Meanwhile, in the supply of ingots in the commodity exchange, we are witnessing intensifying competition to buy products. As a result, the final selling price will increase significantly from the base price due to high demand, and production will not be profitable for rollers. Regarding the declining statistics of ingot exports in the first months of this year, he said: “Unfortunately, the statistics provided are not very reliable.” A significant part of the country’s ingot production is owned by large steel units that are somehow dependent on the government; Therefore, efforts are often made to protect the interests of these units.
As a result, one should not rely on the statistics of the decline in ingot exports this year. As the study of market conditions confirms this point. The amount of ingot production in our country is far more than the needs of domestic industries. When this market is facing a significant shortage of ingots, it means that the rest of the products are sold elsewhere.
*** Approvals are not enforceable
The steel industry activist added: The Ministry of Industry, Mines and Trade has obliged these producers to offer 60% of their products on the commodity exchange every month. Under such circumstances, they can sell the rest of their products in the international market. At the same time, the buyers of ingots are obliged to sell their final products in the commodity exchange in exchange for buying raw materials. But unfortunately, such approvals are not implemented; That is, steelmakers do not offer 60% of their ingots on the commodity exchange. The total monthly supply of these units in the commodity exchange is estimated at 300 to 400 thousand tons, which is much less than the supply mandated by the Ministry of Industry, Mines and Trade; Therefore, it is natural that in such circumstances, the balance of this market will disappear.
*** We are not against exports
He stressed: “We are not against exports, because exports are a currency for the country and provide the basis for the development of industries.” But these exports must also be managed by downstream management. Therefore, as mentioned earlier, if the government implements the issued directives, the problems of this chain will be solved. But it seems that the government’s power does not reach the ingot producers.
In response to a question about the impact of this price increase on the performance of the downstream units of the country’s steel industry, Saeidian said: “In such circumstances, the production of these units is severely limited.” Many manufacturers of long products have reduced their shifts and are working at minimum capacity.
Given that this year has been registered by the Supreme Leader of the Revolution as a leap in production, but in the current situation, it is not possible to fulfill this slogan in the downstream steel industry. He added: “Most producers of steel ingots are dependent on the government and buy their raw materials at very cheap prices.” However, most of the downstream units of this industry not only do not have any advantages, but also face a variety of challenges that affect the production process. In such a situation, it is very likely that many steelmaking units will shut down and downsize.
*** Concluding remarks
Rising exchange rate, overflow of liquidity from the capital market to commodity markets, shortage of steel ingots, engineered supply of raw materials, growth of the global exchange rate, etc. are some of the reasons for increasing the sale of hardware in the market. Each of these factors contributes to the inflammation and disorder of this market. But what is important is that in this process, the price growth of the activity of the producers of downstream products is affected. Many of these producers are moving towards reducing production capacity and adjusting manpower; So you have to worry about the future of this market.
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