TSE Gauge Gains 1.18% to Notch New All-Time High

Tehran Stock Exchange's main index broke above the 92,000 level on Tuesday and recorded a new all-time high, jumping back into the fast growth lane after a few days of slow movements.

TEDPIX gained 1,076.50 points or 1.18% to end trade at 92,628.9, the highest it has ever been. Base metal producers and oil refineries–the market’s primary drivers so far this year–were back on Tuesday to push the market to new heights.

Large-cap companies, including Mobarakeh Steel Company, Bandar Abbas Oil Refinery, and Tamin Petroleum and Petrochemical Investment Company, accounted for close to 450 points of TEDPIX growth.             

After a few months of slumber, automakers joined the ranks of growing industries with Iran Khodro Group spearheading the rise. Positive speculations regarding the future of the 2015 landmark nuclear deal, rising auto import tariffs and a potential drop in raw material prices were the main drivers of Tuesday growth.

 Commodities on the Rise

The steel sector is on a breathtaking rally these days, with prices hitting the highest since the world economy tanked almost a decade ago during the financial crisis ushered in by the collapse of Lehman Brothers Holdings Inc.

As China curbs supply this winter to cut pollution and ensure its citizens can breathe, the spot price of reinforcement bar has spiked to over 5,000 yuan ($755) per ton. That is the highest level since September 2008, the same month that Lehman filed for Chapter 11, Bloomberg reported.

The backdrop of surging steel prices and lower output in China is a boon for mills, both on the mainland, which makes half the global supply, and beyond. Iranian iron and steel makers have benefited from this, too.

Copper has marked its fourth day of growth, as it rose 1.21% on Monday to $6,657 per ton. China’s 42.4% jump in copper imports in November has been the market’s main growth incentive.

Further boosting market sentiment is Goldman Sachs’ Dec. 11 report, forecasting commodities to bring better returns than other assets in the long run. The bank sees returns of 10% in 2018, backed by strong global demand growth.

Coupled with the US dollar’s strong position and the rial’s devaluation on a nearly daily basis against the greenback, commodity producers’ shares seem to have even better days ahead.

 Stars Align for Automakers

A few good things are happening for Iranian auto manufacturers at the same time.

First, the government has recently decided to raise the car import tariff to new highs. The 40% base duties on 1,000-1,500 CC engine will rise to 50%, and duties on 2,000-2,500 CC engine cars will go from 55% to 130%. Cars with higher engine capacities will face tariffs of up to 150%.

The decision was made on Sunday, following an agreement between the ministers of economy, industries and agriculture as well as the heads of Central bank of Iran and Planning and Budget Organization on reassessing Iran’s import duties, Mehr News Agency reported.

Meanwhile, import duties on steel products, including flat steel, has decreased based on a recent official notice.

For semi-finished steel, the duty was reduced from 15% to 5%, while most hot-rolled strips saw duties reduced from 20% to 15%. For HRC below 3 mm, the duty was halved from 20% to 10%, S&P Global Platts reported.

The decision is expected to reduce flat steel prices in the long run and eventually lead to a drop in automakers’ raw material costs.

The two factors, while fundamentally positive, were not the only reasons for optimism.

British Foreign Minister Boris Johnson’s Saturday visit to Tehran prompted renewed optimism about the fate of Iran’s nuclear deal and buoyed auto shares, as the industry will be one of the first in line to benefit from positive developments regarding the deal known as the Joint Comprehensive Plan of Action.

The auto industry leader, Iran Khodro Group, has recently decided to sell a 15.8% stake in two of its subsidiaries. Samand Investment, holding a 10.2% stake in IKCO, and Negar Nasr Company with a 5.6% share will be sold in a block sale valued at $232 million. The sales’ exact date has not yet been determined, but it has fueled market speculation about IKCO’s shares ever since Monday.

 Political Risks Persist

Johnson’s visit might have stoked hopes for improvements on the JCPOA front, but the main threat still remains and the nuclear deal’s future remains unknown.

Two months after Donald Trump offloaded to Congress a decision on whether to reimpose sanctions on Iran, American lawmakers are set to hand the contentious issue back to the president after missing a deadline to deal with it.

Trump vowed in October to scrap the agreement unless Congress and US allies intervened to fix his concerns. In January, he faces deadlines to recertify the deal and waive sanctions or break the pact, with no signs of success in US Congress on helping find a way through.

The US president refused to recertify the deal on October 13, a requirement he faces every 90 days under the Iran Nuclear Agreement Review Act, citing weak enforcement and loopholes. Doing so triggered a 60-day period under which the congress could reimpose sanctions under expedited procedures that expire on Tuesday.

Republican senators Bob Corker and Iran hawk Tom Cotton in October developed a legislative proposal with the White House, which would amend INARA, relieving Trump of certifying every 90 days, tightening the deal and making it contingent on Iran’s regional activities, a move opposed by Iran and European allies.

However, congressional staffers, administration officials and diplomats told Financial Times that efforts to introduce draft legislation to amend INARA have so far come to naught.