In letters to two senior government officials on Thursday, head of Tehran Chamber of Commerce, Industries, Mines and Agriculture called for revising the steel pricing mechanism at the Iran Mercantile Exchange.
As per recently announced regulations, steelmakers are obliged to sell their products at the IME 25% below world market prices.
Masoud Khansari asked first vice president, Eshaq Jahangiri and vice president for economic affairs, Mohammad Nahavandian to set up a committee comprising TCCIM, the Iran Chamber of Commerce, Industries, Mines and Agriculture and Iranian Steel Producers Association (ISPA) to revise steel pricing guidelines, the TCCIMs public relations office reported.
While policy and decision makers ostensibly take such measures to reduce the final price of steel in the domestic market and support end consumers, in essence such moves have had the opposite effect -- filling the coffers of avaricious middlemen and rent-seekers.
Experts say the ill-advised procedures have created high volatility in the steel market and “artificial demand” due to lower IME prices.
Khansari warned that the new pricing mechanism could pour 800 trillion rials of easy money into the pockets of dealers and the army of middlemen.
As per the latest guidelines, "the Ministry of Industries has got extensive authority that could run the risk of rent-seeking in the absence of a supervisory body.”
Given the “pattern of government intervention in setting prices, steel products are priced 25% cheaper than global rates," the letter complained.
Khansari described the interventionist approach to the steel market as "a serious threat" to the production and export of the key commodity.
He pointed to the new regulations that ban export of steel ingot unless steelmakers ensure adequate supply in the domestic market, stressing that this could undermine contractual obligations of steel companies to foreign buyers.
"Steel ingot accounts for 70% of steel export," he recalled, adding that such an ill-advised policy is incompatible with the country's oft-mentioned trade policy that lays extra emphasis on non-oil exports and wean away from volatile international crude prices.
The government's controversial decision has drawn open criticism from other private businesses. Hossein Selahvarzi, a member of the Bourse Council and vice president of ICCIMA, earlier warned about the harmful impact of the unwanted and unhelpful state pricing structure for steel.
“What is the outcome? Selling millions of tons of subsidized steel with no one knowing how much of this subsidy reaches the end consumer,” he wrote in his twitter account.
Impact on Share Market
The decision has also drawn the ire of capital market players and shareholders of steel companies. Capital market officials are concerned 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, it handles trade in agricultural, industrial goods and petrochemicals in the spot and futures markets.
Khansari reiterated that the ill-informed decision has negatively impacted sentiment in the stock market and led to sell-off in shares of listed steel companies.
Last month Hassan Qalibaf-Asl, head of the Securities and Exchange Organization, pointed to the high number of listed metal and steel companies and said setting prices below the “real value” of steel will hurt steel companies and, by extension, infringe on the rights of more than 50 million shareholders.
