No Steel Price Rise at IME Until June 21

The ministry has also mandated upstream producers to increase their IME supply and refrain from offering products outside the mercantile exchange, Tehran Chamber of Commerce, Industries, Mines and Agriculture reported.

Producers and users alike have been encouraged to share their ideas and criticisms on IME steel pricing and supply method with the ministry in a week’s time.

The pricing move was the result of months of lobbying by downstream users’ associations such as Syndicate of Steel Pipe and Profile Manufacturers. Their efforts reached their climax late last month as the head of TCCIM, Masoud Khansari, penned a letter to President Hassan Rouhani decrying “unreasonable” hikes in steel prices over producers’ claim of a devaluing rial.

“The steel industry has unfortunately boosted prices by 20% during the last two months over currency exchange rate fluctuations, while their production, which is locally fed and financed, is not at affected by the exchange rate,” the TCCIM chief wrote on Feb. 19.

“As steel prices affect about 600 other commodity groups and can cause prices to grow across the spectrum of steel products, we hereby request that prices revert to levels before the currency fluctuations.”

TCCIM members did not get what they wanted, but they managed to retain the current prices for the time being.

The rial was traded at about 49,000 against the US dollar in mid-February–the rial’s lowest against the greenback–after a near two-month bull run from 41,000.

The rally was quashed through a mix of measures, such as a police crackdown on currency hawkers and freezing major traders’ accounts totaling $4.1 billion, plus a rescue package by the Central Bank of Iran, including the issuance of certificates of deposit with an interest rate of 5% higher than that offered for bank deposits, 15%.

Steelmakers wasted no time to cash in. Exports for Bahman, the 11th month of the Iranian year (Jan. 21-Feb. 19) surged 111% year-on-year to 763,304 tons. The month before it also saw shipments grow in double digits. Iran’s largest steel exporter Khouzestan Steel Company, for instance, exported $191.5 million of slab and billet in this month alone.

 The Official Narrative’s Undercurrent

Scouting the local media indicates that long before TCCIM and the ministry got involved, the main fight was between Mobarakeh Steel Company and Syndicate of Steel Pipe and Profile Manufacturers. The former is the latter’s primary supplier of flat steel and their relationship is far from friendly.

Their faceoff started in mid-2017. The syndicate accused MSC of refusing to provide pipe producers with their much-needed feedstock of flat steel, primarily less than 5mm-thick hot-rolled coil. They held that the steelmaker is prioritizing exports over local market, while also slamming the price disparity. 

Thus started the two entities' media war, with the syndicate dragging the Ministry of Industries, Mining and Trade in and MSC defending exports as necessary, amid stagnation in the local market.

MSC finally caved in. Its HRC shipments started shrinking (they are still on a downtrend to date) and local supply grew on the back of rising output. What really sapped MSC’s exports, other than the ministry’s formal order, was the European Union’s decision to set an anti-dumping duty of €57.5 on its shipments to the continent. Without the EU, other foreign markets were of little interest to the steelmaker.

The ministry’s formal directive all but confined Mobarakeh HRC to the local market. It also enforced a new pricing formula for its IME supply, that is SANA forex rate multiplied by Metal Bulletin’s 15-day average CSI and Black Sea price to determine the base price.

According to MSC’s Managing Director Bahram Sobhani, the steelmaker has already embraced the formula and is pricing its offerings accordingly.

But recent forex volatility has also affected the SANA rate, which is the average official rate offered by bureaux de change. It has jumped from about 35,000 rials when the formula was first enforced to 44,800, according to Tehran Gold and Jewelry Union statistics.

This makes the formula and, in turn, current IME steel prices, undesirable even for those who lobbied for it. Hence, the users’ new push for returning prices to pre-USD rally levels.

Whether one side is right or not does not mean much in a business environment, as everyone is obviously looking out for one's own interest. The only target to point fingers at is government-enforced pricing that, outside of a centralized state planning structure, will only serve to undermine the market.