CARACAS/LONDON Aug 27 Venezuela is hiking
prices for its metals and minerals exports in an effort to
obtain a "fair price" from buyers, but traders warned the move
could leave the OPEC nation without buyers for its most
important non-oil exports.
President Nicolas Maduro said the system would boost revenue
for metals including iron, steel and aluminum, while reducing
costly commissions paid to intermediaries and traders.
The "sovereign marketing" plan was rolled out in conjunction
with promises by Maduro of a broad campaign to crack down on
corruption after the arrest of several officials over alleged
kickbacks at a state-run company.
"It is the state that sets the price of these products that
will be sold, it's not some mafia ... no individual is going to
come here and tell us the value of a product that belongs to all
Venezuelans," Industry Minister Ricardo Menendez said last week
during the launch of the new system.
Better known as a major oil producer, Venezuela also exports
metals including long and flat steel products, iron ore, and
primary aluminum that are produced by state-run firms.
Though it traditionally sold those metals using the
benchmark prices of the London Metals Exchange (LME) -
the world's top market for non-ferrous metals options and
contracts - it also offered discounts off the reference prices.
With the new mechanism, Venezuelan is now selling its metals
well above the international price, according to mining industry
workers, though it is not immediately evident how the companies
are establishing prices.
The industry ministry did not respond to requests for
Menendez pointed to a recent shipment of hot-briquetted iron
(HBI) that sold for $310.00 per tonne, compared with a previous
shipment that sold for $268.50 per tonne, noting that this would
save the country $1.26 million.
'NO IDEA WHAT IT'S DOING'
Metals traders have decried the effort as another obstacle
to doing business in the country, where commodities transactions
are already made complicated by strict currency controls and
overstretched port infrastructure.
"The government has no idea what it's doing ... They put up
so many obstacles that clients are losing faith in Venezuela,"
said one ferrous metals trader who works in Venezuela.
"This is crazy, it's never going to work," said a metals
merchant based in the United States. "People are leaving
Venezuelan minerals in the ports."
Venezuela's metals industry output has slumped due to lack
of investment, swollen payrolls and outdated technology.
The contribution of mining to Venezuela's
economic growth has fallen by 25 percent over the last decade,
official figures say.
Metals output never recovered from a slump during an
electricity crisis in 2010. At the same time, production costs
have soared to the point they usually exceed the price fetched
on the export markets.
Sidor, the largest steelmaker in the Andes region, was
nationalized by the late socialist leader Hugo Chavez in 2008.
According to official figures, it spends $700 to produce a tonne
of steel billet that sells for $150 on the LME.
Venezuela largely stopped exporting steel because of demand
from the local construction sector, driven by a massive housing
program created by Chavez.
At Venalum, which has Latin America's largest aluminum
plant, producing a tonne of aluminum costs $3,215, according to
official figures, even though the LME lists its price at
Production at Venalum has fallen to levels similar to those
of 20 years ago, and it is currently using only 35 percent of
its installed capacity. It is exporting only about a third of
its output, or some 44,640 tonnes.
This is considerably less than its supply commitments of
60,000 tonnes per year to commodities giant Glencore and 18,000
tonnes per year to Hong Kong-based Noble Resources, part of
The price disparities are partly the result of Venezuela's
exchange control system, which fix the bolivar currency at a
rate of 6.3 per dollar, even as greenbacks fetch more than five
times that on an illegal black market.
(Writing by Brian Ellsworth; Editing by Daniel Wallis and David