Iranian steel market has experienced several ups and downs in a period of six months. The steel market has been hit hard by various corona peaks and dollar fluctuations. Under the current circumstances, the government and the dollar exchange rate will be two very key factors in determining the future price of steel. There is still no specific behavior on the part of the government that is based on an economic tactic. Certainly the government and the dollar will be two key factors in the future of steel policy. In the following, we will examine the approaches that these two factors have taken or will take. Please be with Artan Press.
*** Finding the roots of irrational prices in the Iranian steel market
We have always seen a constant price difference between the domestic and export markets in the Iranian steel market. Export prices were always about 20% higher than domestic prices on average for steel products. But it has been about three to four months that the trend of domestic steel trading has changed completely. We are witnessing a rate divergence in the domestic and export markets. This market is based on the basic components on which the domestic steel price is defined. The Iranian steel market hides a fact in its heart, and that is the distance of about 1500 Tomans per kilogram with export rates. This gap has widened since the domestic and export markets were reversed. As a result, we saw a downward divergence compared to the consistent setbacks in export markets.
*** The role of government in the growth of domestic prices in the Iranian steel market
But what caused us to experience price inversion in the Iranian steel market in an unexpected and unprecedented way? What stimulated and supported this increase in prices in the domestic market coincided with the reverse process of global market retreats. In principle, the problems of supplying electricity to steel mills and limiting the volume of supply in the domestic market, which now seems to be gradually entering the autumn season and the air is cooler and the ultimatum of the Ministry of Silence to producers to observe the volume of domestic supply; This correction process will continue. Of course, this issue is completely dependent on the control policies of the Ministry of Silence with the current new management, based on controlling the export output of the country’s major steelmakers in order to supply the domestic market.
*** Domestic steel market in the first priority of the Ministry of Silence
The more the Ministry of Silence is more sensitive to the priority of supplying the domestic market than to export areas, and the more it insists on steelmakers to supply the domestic market. Definitely, the reform and the downward trend of the domestic market will continue to more reasonable levels. In fact, the beard and scissors are in the hands of the Ministry of Silence itself. The less sensitive it is to export ticks. The slope of large steelmakers will be more export-oriented and the domestic market will face shortages and price increases. According to available statistics; In the first four months of the year, only 17.5 percent of the steel produced in the domestic market was sold through commodity exchanges.
*** Mandatory pricing is the cause of the weakness of the commodity exchange
Weakness of the commodity exchange has many different meanings. This shows that despite the problems of power supply to steel mills, if there is a will and desire for a market regulator to saturate the domestic market supply. This is important by limiting the export screw; Easily available to the government. Of course, it is clear that it will face a strong reaction from the steelmakers. As if this protest happened a while ago and again the Ministry of Silence was forced to withdraw. With grammatical pricing and market release, production becomes problematic or huge profits are made. Pricing criteria must be established, and this requires transparency of prices in the commodity exchange to determine the real prices of industrial products, including steel.
*** The role of brokers and production costs in the growth of Iranian steel market prices
But what has caused the Iranian steel market to witness this price increase? In the current situation, the cost of distribution and brokers are the two main factors that increase prices. It will take almost two years to reform the structure of the distribution system, and in the discussion of brokers, we have rules, but we do not have the tools to implement them. In this regard, the comprehensive trading system will give us the tools to regulate prices. If we want to become an economic power, we must focus on three categories: electronic equipment, industrial equipment, and transportation. Industries such as steel and petrochemicals are moving in the direction of this peak. We have proposed plans to make production activities transparent, distribute goods, prevent smuggling, hoarding and fraud, one of which is to set up a system of rules and licenses to deal with golden signatures, privacy and kingdoms.
*** Weak government ownership of the domestic steel market
Evaluation and monitoring of the Iranian steel market shows that the current price inspections are not professional. By overseeing the flow of goods and financial flows, an unreasonable increase in prices is identified and dealt with. The government is not a good holder and we must move towards governing the government. Let’s move in the direction of handing over the ownership and management of Imdro as much as possible according to Article 44 of the Constitution. The exchange rate is a good indicator of what we expect from the new government’s Ministry of Economy. With some tricks, the dollar rate may decrease from one thousand to two thousand tomans, but there is no doubt that the exchange rate trend will increase by 100% by the end of the year and the end of the new government.
*** The dependence of the country’s inflation on the dollar exchange rate
In quantitative indicators, there is some debate about the price of the dollar. But what is obvious and what we have seen from experience is that the country’s inflation rate in any case affects the exchange rates. At present, with the continuation of 50% inflation in the country, the rial rate will weaken by the same amount against foreign rates. It is possible The government can control the growth of the dollar for a year or two with control policies, but in the end, we will see a tenfold jump in the exchange rate. For this reason, if we assume that the dollar rate is already in equilibrium, with the same rate of inflation, that is, next year, the dollar should be considered twice the current rate.
*** The role of behavioral economics in steel market rates
Expectations in economics have a greater impact on macroeconomic variables. Because we are dealing with human factors in this index and these expectations are formed by the average society due to inflation expectations, fear of the value of money, expectations of political relations abroad, which are influential in determining this rate, the effect of which can be variable. The currency market is a bit bigger. For many years, we have not had a stable economic minister, and the government has always been unable to fulfill its promises to the nation. For this reason, trade can also exacerbate this debate.
*** Falling dollar and lowering inflation expectations of domestic steel
It seems that the fall in the price of the dollar can put the fever of commodity markets, especially the Iranian steel market, to sleep. According to the capital market database, the exchange rate of the dollar banknote has decreased by about 250 Tomans so far and could not maintain the record of 28,000 Tomans; This issue was met with a negative reaction from the entire capital market index, and on the other hand, the downward trend of the country’s long-term steel market accelerated.
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