As the basic metal and its derivatives play an important role in Iran’s capital market, it should be critical for foreign investors to know more about this sector in Iran.
As the table below shows, the basic classification of this industry in Iran is based on their products. the names of some important and big companies has been mentioned (according to their market shares) in every classification as follow:
|Indexes||Companies’ Tick in Iran’s Capital Market|
|Basic Metal Industry||Calcimine (KSIM1) – Mobarakeh Steel (FOLD1) – Khouzestan Steel (FKHZ1 ) – Iran Fold (FAIR1) – National Iranian Copper Industries Co (MSMI1)|
|Metal Ore||Chadormalu (CHML1) – Gol-E-Gohar (GOLG1) – Bama (BAMA1) – Bafgh Mining (BAFG1)|
|Coal||Negin Tabas (TBAS1)|
|Non-Metallic Mineral||Hamadan Glass (SHMD1) – Glass and Gas (SGAZ1) – Iran Refract (NASI1)|
The trends for TEDPIX (Tehran’s Exchange Dividend and Price Index) and the mentioned indexes during recent five years has been shown in the charts below:
As it has been shown, these industries follow TEDPIX`s trend in most of the times, but the fact is that the share of these industries is around 15% in Iran’s capital market. This share was fluctuated mostly around 15 to 20% and sometimes it has reached to more than 30%. As a result, it could be as a leader of the Iran’s capital market. By this way, it could be probable that Iran’s capital market follow the trend of this sector.
If you consider the international commodity prices as it has been shown in the charts below, you will understand that there are some factors which can influence this part. The most important one is the exchange rate. By this way, these industries follow not only commodities` prices, but also fluctuation of Rial versus other currencies ($1 could be exchanged for 38,580 Rials on January 16, down by 300 Rials in 20 days, in the market. It should be mentioned that in Iran there are 2 different rates for most of the currencies versus Rial, the first one is official rate and the another is the rate in market. The official rate is the rate that central bank of Iran use it for special purposes, pricing strategy in Iran is mostly used the exchange rate in market). Then, the value of Iranian Rial against other currencies play an important role in the pricing of steel in the local market of Iran, maybe it’s a little in contradictory to the most of foreign investors’ belief that steel pricing in Iran only follow steel price in the world.
Billet and Bloom price – price of billet, bloom and slab of CIS countries (FOB black sea)
As you can see, although steel price in the world had been decreased since May 2015 to Feb 2016 around 25%, basic metal index had been decreased about 13% mostly thanks to 3% appreciation of Dollar against Iranian Rial.
It shows how investors can hedge their investing against decrement in international price of metals by increasing of exchange rate in Iran.
Steel pricing in Iran is determined based on Khouzestan Steel Company (FKHZ1 – one of the main Iran’s principal supplier of semi-finished steel), it produces billet and bloom and its pricing strategy is influenced from not only international prices, but also fluctuation of Rial. Khouzestan Steel Company sells some batches of billet and bloom through the Iran Mercantile Exchange in cash or forward contracts.
Furthermore, some companies such as Gol-E-Gohar (GOLG1), Khouzestan steel, National Iranian Copper Industries Co (MSMI1 – one of the biggest Iranian companies in producing copper cathodes and concentrates) and the like which export their products to other countries has been influenced more since the fluctuation in exchange rate of dollar against Rial. (the mentioned three companies have 5.35% of market share in 18th Jan 2017)
To put it in a nutshell, although there is no doubt that the international commodities` prices have the important influence on the Iranian commodities` prices, the exchange rates of currencies specially dollar against Iranian Rial play an important role in Iranian basic metal companies and their derivatives. By this way, it provides the investors with the opportunity to hedge their investing if there is a probability of decreasing of international commodities` prices and depreciation of Rial. And also, if the companies export their products, it would increase the companies’ profit.