Trading of steel ingots resumed again today (Tuesday, August 4) on the Commodity Exchange, and after 20 days of market closure, the price of this product returned to the trading ring with a one percent growth in the price of this product. In previous analyzes, we had interpreted the induction ingot market in a two-way way and considered the scenario of welcoming ingot supply more likely. This happened today and the market welcomed the offers of this sector. But it should be noted that entering this scenario means accepting the sale of steel ingots above the planned margin. This could lead to a stagflation in the steel market in the medium term. In the following, we will explain this issue. Please be with Artan Press.
*** Unusual margins in steel ingots trading
Today, according to the commodity exchange implementation plan, a total of 92,500 tons of ingots with a weighted average rate of 133,356 Rials (about 14,535 Tomans including VAT) were offered in the Commodity Exchange. Steel ingot trading was controversial today. This offer was met with a significant response from the market. Analysis of prices and offers in the market shows that there is a discrepancy in the offered prices
*** Compare the margins of ingots and rebars
While the profit margin of 47% for the ingots and scrap market is obtained in steel ingots trading, these numbers are significant differences for other parts of the supply chain. For example, let’s take a look at the financial exchanges between steel ingot chains and ribbed rebar.
*** Intangible rent in the production of induction ingots
Significant rents are seen in steel ingot transactions. The average estimate of the gross and approximate margin of the rolled rebar field relative to the induction ingot rate is about 9%, which is significantly different from the ingot and scrap margin rate. This means that the ingot market is not affected on holidays and is in an even better position than the upstream areas. It seems that the pressure of the steel chain is unevenly distributed in these risks, and at least it can be said that the situation of the ingot activists is better than the rest of the fields.
But in these circumstances, they should not accelerate the process of stagflation in the steel market by increasing production costs. It seems that the steelmakers’ margin has crossed its red line in the current situation. This field (induction ingot) currently stands at least 15% above the conventional margin. Continuation of this issue will make steel more expensive at the end of the summer. This warning is definite for steel policymakers.
*** The origin of incorrect pricing in the steel chain
But where does this problem come from? Rising prices have been intermittently imposed on steel ingots in recent months. This increase in rates was often accompanied by the excuse of rising world prices. This path went so far that some domestic rates even went above the global average.
In the first quarter of this year; The country’s steel market, regardless of the system governing supply and demand; By applying alternating prices at the base rate of supply of steel ingots, despite the unwillingness of demand to compete in the industrial ring of the Commodity Exchange; The price increase of about 21 to 23 percent in this market during the mentioned period was observed in silence, watching and in a way expressing the inability of the Ministry of Silence in the domestic market. The sum of the competition in the industrial ring of the commodity exchange by demand is only about 2%, while the market maker has applied a 21 to 23% price increase in the domestic market, according to the global rate formula formula, regardless of the demand.
*** Lack of accountability of the market maker for the current market scenario
The market maker must be accountable for the situation today. Steel ingot trading can disrupt the steel production chain. Unfortunately, in order to respond to these conditions and the reasons for the slight increase in prices, the officials are evading. Any questions about who was responsible for this incident; There is no clear answer and each of the relevant officials shrugs off the responsibility for this pricing. The face of the issue is quite clear. Iran’s steel market was accompanied by a steady rise in prices, regardless of demand, amid a recession in the market.
We saw this issue in the news and the consequences were announced. Why not take action in this regard at a specific time and when the market can be easily controlled. Continuation of the current trend of significant rents will flow into the pockets of steel ingot producers. The imbalance of the steel production chain in terms of profitability will have consequences that can no longer be prevented by providing production subsidies.
*** Power generation crisis and change in steel bullion trading rates
In a situation where the electricity crisis has gripped producers, manipulating the margins of production profits will definitely be a big step in the direction of sanctions. If the power supply situation of steelmakers improves; Or the price of raw materials, including scrap iron and sponge iron, should increase; Or reduce the price of products produced on these raw materials. Or both of them approach each other by increasing and decreasing in order to balance in this chain.
With 10,000 Tomans of scrap iron and 8500 Tomans of sponge iron; The current rates of ingots and the final product, such as ribbed rebar, do not match the raw materials and this situation is not going to continue forever. It seems that the start of supply of steel ingots was only to normalize new prices and stabilize current rates in the market. With the rolling market being destroyed, the margin of more than 40% in the production of steel ingots is a strategic mistake in the process. Commodity exchange trading.
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