There is growing pessimism among capital market players and shareholders of steel companies over a government decision to intervene in the pricing of steel products in the Iran Mercantile Exchange.
The criticism took new dimensions soon after a meeting attended by the Minister of Industries Alireza Razm-Hosseini, First Vice President Eshaq Jahangiri and steel industry leaders Friday to discuss pricing mechanisms of steel products.
Capital market officials are concerned about the government decision to “set a ceiling and a floor” for steel prices at the IME, warning that this may impair the price discovery mechanism in the capital market.
IME is a commodities exchange based in Tehran. Founded in 2006, IME trades in agricultural, industrial and petrochemical products in the spot and futures markets.
“This decision will have no positive result save for rent-seeking among a selected few and violating the rights of 50 million shareholders,” Hassan Qalibaf-Asl, head of the Securities and Exchange Organization, was quoted as saying by SEO news agency.
Pointing to the high number of listed metal and steel companies, Qalibaf-Asl said setting prices below the “real value” of steel products will hurt steel companies, and by extension, infringe on the rights of more than 50 million shareholders.
Interest of Rent-Seekers
While policy and decision makers ostensibly take such measures to reduce the final price of steel and support end consumers, in essence such actions only help fill the coffers of rent-seekers.
Pointing to a similar experience two years ago, the official said the ill-advised procedure led to steep volatility in the market and “artificial demand” for steel products due to lower prices at the IME.
The decision was also strongly opposed by other capital market stakeholders, including members of the High Council of Securities and Exchange.
“Setting price ceiling for products of companies listed in stock market means loss to shareholders and filling the pockets of middlemen,” Saeed Eslami Bigdeli, a member of bourse council, wrote in a post on his tweeter account.
Eslami Bigdeli cast doubt on the perceived efficacy of such decisions on reducing the price of steel in the open market. “If the past is anything to go by, price ceiling does not lead to lower prices for end consumers,” he wrote.
Negative Overall
In the same vein, Hossein Selahvarzi, also a member of the bourse council and the vice president of Iran Chamber of Commerce, Industries, Mines and Agriculture pointed to the harmful effects of the controversial pricing mechanism on shares prices of listed steel companies and the negative impact on market capitalization.
He ascribed the steep deprecation of share prices of steel companies as one ramification of such decisions.
“The unacceptable decision wiped off 3,500 trillion rials [ $12 billion] from the bourse in recent days,” Selahvarzi tweeted, claiming that the figure is equivalent to the value of a giant steel holding company like of Mobarakeh Steel Company -- Iran’s largest steelmaker and among the top three listed companies at the Tehran Stock Exchange in terms of market cap.
“What is the outcome? Supplying millions of tons of subsidized steel and no one knows how much of this subsidy reaches the end consumer.”
