The mystery of the exchange rate of exchange industries / stabilization or floating; Which method makes companies profitable?

According to Tejarat News, over the past two weeks, the capital market has been affected by the government’s questionable decision to stabilize the currency exchange rate at 28,500 tomans, especially for petrochemical and refining companies. Market observers believe that the exchange rate for these companies should be floating; An opinion which, of course, the parliament also agrees with, and which was emphasized in the letter that Mohammad Bagher Qalibaf sent to the Cabinet of Ministers in opposition to the government’s decision.

The function of currency exchange in financial statements

Reza Rashund, a capital market expert, in an interview with Tejarat News, has investigated the importance and effect of exchange rates on the performance of companies. In response to the question about the function of currency exchange in calculating the profit and loss of companies, he said: “The exchange rate is actually the conversion rate of the export currency into the country’s currency. You convert dollars to Rials at a certain rate; Since in the financial structure, the financial statements must be adjusted based on the country’s currency, a rate is defined as the exchange rate.

This capital market expert said: “We must note that the increase in the exchange rate basically means the weakening of the country’s currency against foreign currency. Therefore, an increase in the exchange rate does not mean anything, but a decrease in the monetary value of the rial compared to another monetary unit is in question.

He added: “The important point in this regard is the operating leverage that export companies have in inflationary economic conditions. In fact, because the growth of operating costs such as salaries and the cost of inputs such as energy has a more limited growth slope than the growth of inflation and the depreciation of the national currency, the operating leverage of export companies allows them to grow more profitability (whether to experience in reality or operationally.

Which industries are affected by exchange rate changes?

But which categories of industries and stock market companies will be affected by this rate? In response to this question, Rashund said: “Companies that export, and of course companies inside Iran, who have the ability to raise the final price of the product with the growth of the exchange rate, are affected by the change in the exchange rate.”

He explained: “It means that this product has a single value in the world, and this single value will spread to the domestic market, and finally, the price of the product produced by these companies will increase. In Iran, this idea exists mainly about the petrochemical, mineral and metal industries.

The effect of the exchange rate on the state of refineries

Regarding the effect of the exchange rate on the refining industry, Rashund said: “In relation to the refining companies, first of all, it should be known that the oil received by the refining companies was at the rate of 28,500 tomans, and also the product that was sold was at 28,000 dollars. It was priced at 500 tomans. Changing this rate can have a tremendous impact on the structural operations of refining companies.”

He explained: “The way the refineries operate is that the government subsidizes the gasoline and diesel that are sold inside, from its own pocket. However, the export of the companies of this important group will tend to zero and maybe even negative due to the inability to meet domestic demand.

exchange rate floating; yes or no

Currently, the exchange rate for these companies is set at 28 thousand 500 tomans and it has a noticeable distance from the open market. How will this price affect the financial statements of companies?

Referring to the types of currency prices in the country, Rashund said in response to this question: “According to the definition of the Central Bank, there are markets for the dollar such as the informal market, the 28,500 toman dollar, the Nima system and the second Nima system. Most of the time, the exchange rate of non-oil exporters (including petrochemicals, metals, and minerals) is done with Nima’s second market, which is currently in the range of 38,000 to 39,000 Tomans.

This capital market expert added: “USD 28,500 is used to import basic goods, which are sourced from oil sales. But removing the exchange rate of 28,500 Tomans depends on whether the government really wants to remove the 28,500 Toman dollar and, for example, is willing to import livestock and poultry feed at the exchange rate of 40,000 Tomans or not. ?’

Rashund emphasized: “Such a decision will have a large scope of influence. For example, in this matter, the import of livestock and poultry feed with 40 thousand Toman dollars will cause a 20-25% jump in the price of meat and chicken.”

He added: “Metal and mineral companies, but their products have a single global value, and domestically, they have a specific rate based on supply and demand, both in the commodity exchange and in exports.” For example, prices in the range of 50,000 Tomans have been recorded for the national copper cathode.

This capital market expert said: “In another view, petrochemical companies that control the inter-complex market will benefit from this issue; For example, the Nouri Petrochemical Paraxylin product sold to Tendgovian Company. Of course, serious obstacles in the path of profitability have increased and limit such companies. Because the price of food that they received until now is calculated with 28 thousand and 500 tomans dollars, and if it is removed, the price of food will also increase up to the range of 40 thousand tomans dollars.

Rashund stated: “Therefore, the effects of removing the 28,500 Toman dollar are favorable for some companies, and on the other hand, it is unfavorable for the majority, including urea and methanol.”

He added: “On the one hand, due to the fact that the gas consumption rate of companies is connected with the feed rate of 28,500 tomans (dollars), the cost of companies increases. Each cubic meter of gas is currently in the range of 13 cents. With 28 thousand and 500 Tomans in dollars, its price is calculated in Tomans, 3 thousand and 705 Tomans. Now, if these calculations are to be done with 40 thousand tomans, the price of each cubic meter of gas will increase up to 5 thousand 200 tomans, which means an increase in costs for companies.”

This capital market expert said: “In general, making costs more realistic benefits the country’s structure, but some companies will not benefit from this issue and will suffer.”

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