The recently imposed export duties on mineral products is a short-term measure taken by the government and is aimed at regulating the domestic market, says Mohammad Sadeq Mofatteh, deputy minister of industries, mining and trade.
“By levying customs duties on exports, supply to the domestic market will increase. We have a chart in the Industries Ministry based on which customs duties will be set on exports when domestic and global price difference exceeds a threshold,” he was quoted as saying by IRNA on Saturday.
The export duties, he added, will change in accordance with global price fluctuations, noting that last week, the duties were reduced because prices in the international market declined.
Seifollah Amiri, director general of Mineral Industries Department of the Industries Ministry, said customs duties on exports of mineral products announced in early April were reduced recently and communicated to the Islamic Republic of Iran Customs Administration to take effect on April 27.
“We have reduced the customs duties set around a month ago because of the recent decline in global prices of different mineral commodities,” he said.
The official stressed that duties on certain products were lifted altogether, but if global prices rise in the future, they will be levied again.
“The Industries Ministry will be surveying global prices over the next two weeks and will make changes in duty rates again based on the market situation. Consignments for which order placements were made before this new regulation or those that have warehouse receipts belonging to earlier dates will not need to pay any duties,” he said.
Amiri noted that the Industries Ministry will set customs duties on mineral products that see price increases of 5% or more in the international markets, but those experiencing price rises of 0-5% will be exempt.
“In setting customs duties, we also take into account the domestic market situation. For some products, the mining industry had no problems supplying the local market so we eliminated the export duties,” he added.
Prior to the new decision, the ministry sent a directive to IRICA on April 9 for export duties on mineral products to become effective in the new fiscal year (started March 21). Customs duties were to be imposed on exports of all products along the steel production chain from iron ore to steel ingots and downstream products, as well as base metals, including copper, aluminum and zinc, from concentrates to the metal and downstream products, petrochemicals, chemicals, glass, clinker, cement and all kinds of ferroalloys.
The rate of the duties was said to be progressive in nature, meaning they increase as the export volume rises. The decision provoked strong criticism among businesspeople active in the field.
Strong Protest
The decision to levy export duties met with strong protest among industry players.
“It will inflict hefty losses on investors and shareholders of the steel industry,” said a member of the board of directors at Iran’s Steel Producers Association.
“The Industries Ministry’s new measure to impose customs duties on the exports of steel industry’s downstream product like ingots and reinforcement bars is a big mistake. The war between Ukraine and Russia has created a vacuum in the exports of these products. Now is the time for Iranian steel and mineral products to use this absence and find new markets across the globe. It is unfortunate that the government comes up with such ways of gaining revenues, when it can instead think about how higher exports can raise the foreign currency earnings for the country,” Reza Shahrestani added.
Anoush Roham, secretary of Pipe and Profile Producers Syndicate, echoed the same concern and said now that Russia has been sanctioned, it has lost its international markets for many commodities and for the same reason, global prices have increased.
“It was estimated at the beginning of the war that demand for Iranian commodities will increase and replace those Russian and Ukrainian produce. Therefore, the Industries Ministry decided to set customs duties on the exports of some goods to be able to manage the situation and prevent supply shortage in the domestic market. But there are many faults in the regulation, which show the decision was not thoughtful,” he said.
The official noted that prior to this decision, customs duties were only imposed on the exports of upstream products, that is unprocessed materials and not on products near the end of the steel production chain and those in the downstream industries with value added.
“The private sector has tried hard to secure footholds in foreign markets over the past years and these overnight decisions ruin all our efforts. Today, we are shocked by the new measure. Wouldn’t it be better if the government had held meetings with local producers and come up with plans on how to support downstream industries which now have surplus production and export capacities? Why lose the rare opportunity that can create wealth?”
Roham added that steel industry associations and unions are ready to sit with Industries Ministry officials and survey the many ways the two parties can secure Iran’s national interest and at the same time, make better use of opportunities arising in global markets, especially during these difficult times of economic sanctions imposed on the country.
Karim Rahimi, a member of the board at the Iranian Steel Rolling Association, says after oil, gas and petrochemicals, the steel sector brings in the most foreign currency to the country.
“I believe that the government’s decision was aimed at controlling local prices. But there are better ways to do so, which are less detrimental to the steel sector. One way is to provide raw materials like sheets to the industry and another way is to manage Iran Mercantile Exchange and make prices real,” he added.
Domestic Steel Supply Twice as Much as Demand
Mohammad Reza Jourabchi, a mineral sector analyst, said such decisions are usually made in the name of regulating the market and meeting domestic demand.
“State officials, more often than not, take such measures in the face of high inflation and forex rate fluctuations. This time, the government needed to secure revenues by claiming a share of steel exports,” he added.
Jourabchi noted that production is much more than meeting local demand and a large portion of steel products have no customers in the domestic market, so what the ministry claims as the reason behind this measure, that is, managing local supply, cannot be true andthe decision goes against market mechanisms and will not reduce prices.
Bahram Sobhani, the head of the board at Iran’s Steel Producers Association, voiced his concerns in a letter to Minister of Industries, Mining and Trade Reza Fatemi-Amin.
“Iran’s steel industries have managed to place the country as the world’s 10th biggest producer, despite all the restrictions and sanctions. Last year, the industry suffered losses due to gas and electricity shortage but did not for once, think twice about cooperating with the government. Now that we have the opportunity to compensate part of these losses, we do not expect the government to step in the way and use the situation to its own benefit,” IRNA reported.
“It seems that the Market Regulation Headquarters is worried that domestic supply will be hampered if exports increase, but the question is why and how has this decision-making body been misinformed about local production and demand?” he added.
According to the official, local steel production is currently twice the volume of domestic demand.
Sobhani concluded that the move would have grave repercussions for the stock market where more than 50% of the shares belong to steel, mineral and petrochemical companies.
On April 12, only one day after the announcement of the new measure, the Tehran Stock Exchange index fell by 33,000 points.
