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Government-sanctioned dollar rate basis of MSC prices on commodity exchange

Mobarakeh Steel Company (MSC), which supplies steel sheets to several manufacturers of end products, handles the hot-rolled sheets’ symbol on the Commodity Exchange in compliance with the regulations of the Competition Council and based on authorized prices, Mahmoud Akbari, MSC vice-president for Sales and Marketing, said in response to a question by a Donya-e Eqtesad reporter on the mechanism of steel products’ supply on the Commodity Exchange.
In compliance with the existing regulations, the sale of MSC products on the Commodity Exchange is in proportionate to the rate in which each US dollar buys 4,200 tomans, he said, adding as for other symbols, the base price may be different from that of the Competition Council, but final prices are based on the dollar buying 4,200 tomans.
One main problem associated with the sale of products on the Commodity Exchange has to do with downstream industries, in that MSC products are treated like rebar and girders, whereas they do not fall into the same category. Rebar and girders are exclusively used in construction, but MSC products are for industrial purposes, Akbari further said.
The greater the MSC supply figures (ticker symbols) on the bulletin board, the lower the possibility for downstream industries to plan to purchase MSC products because downstream customers have no idea how much of a certain product they can buy on a daily basis, the MSC vice-president said, adding when a figure appears on the bulletin board, customers with lower volume of consumption are forced to purchase the maximum amount up for sale. For instance, when MSC puts the maximum volume a customer can purchase at 3,000 tons, customers may opt for 3,000 tons even if that figure exceeds their monthly needs.
As a result, companies which produce more and those which produce less can purchase an equal amount of MSC products, and thus companies with higher production capacity can turn to companies with lower production capacity to buy their extra volume to meet their needs. Of course, MSC fixed this problem years ago by presenting a maximum of 20-30 percent of its products on the bulletin board and selling the remainder of its supply – at the same price – to firms based on their consumption potential. That helped MSC prevent speculative buying of steel sheets. Today the sale of MSC products on the Commodity Exchange is based on the US dollar that buys 4,200 tomans which sounds appropriate. It seems that if MSC acted on the agreement it struck 20 years ago and sold 30 percent of its products on the Commodity Exchange and the remainder – at the same price and in line with Stock Exchange regulations – to factories, the practice would inject stability into the market.
A ceiling has been put on purchases of hold- and cold-rolled sheets, slabs, ingots and blooms and a letter by the deputy minister of industries, mines and trade sent to the Commodity Exchange, MSC and the Securities and Exchange Organization calls for supply to be in line with a certain framework.
That letter does not set any limit for MSC, Akbari said, adding if the MSC products it applies to are the ones that appear on the bulletin board and the matching system, things would be alright. But if the entire supply were to appear on the bulletin board, MSC would run into trouble. Because such a system would strip downstream industries of their ability to plan to purchase and produce. Besides, thanks to great willingness to purchase MSC products, the market would become tumultuous. So in talks with the deputy trade minister, it was decided that MSC products be offered both on the bulletin board and in the matching system.
He further stated at no point in time in the past MSC has offered 100,000 tons of cold-rolled products on a monthly basis. Last year we sold up to 1.1 million tons of products on the market; this year the same amount of cold-rolled sheets will find its way into the market. There has been no increase in demand and the tumult on the market has nothing to do with steel sheets. In the past, the prices of MSC sheets were always 200 tomans more than other steel products. Now the reverse holds true. And this shows that there is no tumult on the market. At present buyers are worried about the plunge in the value of the rial against foreign currencies. I believe that trend will be settled over time.
Currently, local prices are set based on the dollar that buys 4,200 tomans, but the greenback at that rate is not offered to everyone. For instance, some entities purchase a certain product at home based on 4,200 tomans to the dollar and then sell the same product overseas in exchange for the greenback. Then they bring in the profits through money exchanges. In other words, the dollar which buys 4,200 tomans is replaced with the dollar at the free-market price (which buys more than 7,000 tomans) and local demand remains there, something the government has to contend with. As for steel products, such exports have been banned and only producers have been authorized to ship their products overseas. Similar policies should be introduced with regard to other locally-made products to prevent their exports, he concluded.

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