The Industries Ministry on Tuesday announced a controversial policy based on which steel products have to be sold at the Iran Mercantile Exchange at prices equivalent to 70% in the Commonwealth of Independent States (CIS) markets.
The announcement was made by the minister, Alireza Razm-Hosseini, who insisted that the news instructions must be fully upheld, IRNA reported.
The plan to intervene in the market and control steel prices has become a topic of hot debate among government officials, steel manufacturers and capital market authorities.
Policy and decision makers argue that such measures would “reduce the final price of steel in the domestic market and support end consumers”. But there is serious concern that such moves in essence have had the opposite effect and in the past filled the coffers of avaricious middlemen and given rise to rent-seeking.
In apparent opposition to such claims and addressing those who support market mechanisms, Razm-Hosseini criticized the present steel trade situation as "all-out economic war". "Decisions made under such conditions must be quick and resolute.” He called on supervisory bodies to increase inspection of warehouses to prevent hoarding.
Rent-Seekers Benefit
Head of Majlis Economic Commission Mohammadreza Pourebrahimi strongly criticized the decision, saying it is in the interest of rent-seekers.
"Both producers and end consumers are the main victims of imposed prices and there always are middlemen who profit," he was quoted as saying by ILNA.
The MP presented data on huge fat profits that rent-seekers made in light of government intervention in prices of other commodities in the recent past.
During a three-month period spanning from March to May 2020, rent-seekers pocketed 80 trillion rials ($320 million) as result of price differences in steel products at the IME with the open market.
In the key petrochemical sector, he said, 70 trillion rials went straight into the coffers of middlemen in fiscal 2018-19.
The steel control decision has drawn unprecedented criticism from capital market officials due to its negative impact on equity prices. The managing director of Securities and Exchange Organization, Hassan Ghalibaf-Asl, has urged the government to stop intervening in the pricing of goods produced by listed companies.
He said such rules are incompatible with competitiveness and market mechanisms where demand and supply determine prices.
"Such measures do not deliver and harm investors. Middlemen emerge winners of such decisions," the Securities and Exchange News Agency quoted him as saying.
Shareholders will be hurt the most by the decision because it will negatively impact the profit margins of listed companies.
Earlier in November the head of Tehran Chamber of Commerce, Industries, Mines and Agriculture Masoud Khansari, called on the government to revise steel pricing mechanisms at the IME.
Khansari rejected the interventionist approach in the steel market as "a serious threat" to the production and export of the key commodity.
Earlier steel rolling manufacturers rejected setting steel prices based on the CIS markets arguing that "there is no wisdom in setting the CIS as criteria at a time when Iran's steel production is higher than in the CIS member states.”
The Commonwealth of Independent States, also known as the Russian Commonwealth (in order to distinguish it from the Commonwealth of Nations), is a political and economic intergovernmental organization of nine member states, all of which are former Soviet Republics located in Eurasia (primarily in Central to North Asia), formed after the dissolution of the Soviet Union.
Highlight: MP: In three months (March-May 2020) rent-seekers pocketed 80 trillion rials ($320 million) due to price differences in steel products at the IME and the open market
Caption: Steel products are supposed to be sold at prices equivalent to 70% of international markets.
