Tian Chenghui: Market prospects for electrical steel industry are unpromising

Asian Metal: Could you give us a brief introduction to your company?

Tian: Our company mainly deals with low grade non-grain oriented electrical steel, targeted at manufacturers of electric motors in the Zhejiang, Shanghai and Pearl River Delta regions. We sell 500-600 tonnes of electrical steel every month with a total turnover of RMB 2.3-2.5 million. Generally speaking, we are a medium-sized electrical steel trading company in Wuhan.

Asian Metal: What is the market share of electrical steel from WISCO in Wuhan right now?

Tian: Electrical steel from WISCO still makes up the largest market share in Wuhan right now with that from Baosteel and TISCO following behind. Electrical steel from WISCO has always been the most popular products, but we’re seeing more and more products from secondary producers circulating in Wuhan. To save on costs, buyers prefer to buy cheaper products when the market is not good.

Asian Metal: How are your current stocks level compared with previous years?

Tian: Currently, our inventory is 500-600t. We have maintained the same stock level in the past two years. However, we held as many as 1,000 tonnes in stocks during 2009, the year when the electrical steel industry developed rapidly. You know that the electrical steel market is quite sluggish at the moment, so we are afraid that holding excessive stocks will bring us losses. In addition, our company is located in Wuhan, where WISCO’s electrical steel is made. We can benefit from lower transportation fees and shorter delivery times compared with traders in other provinces. Therefore, we don’t really have to reserve too many stocks.

Asian Metal: As far as I know, your company deals with high quality electrical steel from WISCO, but you also deal with electrical steel not guaranteed as being of primary quality. Is it true that customers prefer those semi-quality products right now?

Tian: I want to clarify one point: it is true that we deal with electrical steel with flaws, but with some grades, those materials can function as well as certified products. For example, with the 50A600 grade, buyers are usually manufacturers for large-sized or medium-sized electric motors, which require high quality certified electrical steel to be used. However, electrical steel 50A470 and 50A800 are used to produce small-sized electric motors and semi-quality electrical steel with some defectiveness can fulfill buyers’ needs. We can’t say which one is preferred, as different customers have different requirements.

Asian Metal: What is the profit margin for electrical steel at present?

Tian: Currently, the profit we can get is only RMB50-100/t. If you deduct the cost of logistics, warehousing and labor, there is almost no profit left for us. However, the electrical steel market in 2009 was very prosperous and the profits at that time could reach RMB1,000/t. The market competition is fierce and local traders are having a hard time right now with the profit margins continually shrinking.

Asian Metal: There is a saying that goes “Golden September and Sliver October”, which means the market will usually witness a significant improvement during this period. Do you believe the electrical steel market will become much better in the next two months?

Tian: I don’t think the electrical steel market will improve much. On the one hand, oversupply is a serious problem, which cannot be solved easily. Judging from our experience in previous years, the demand from end users is unlikely to release much in September and October, while electrical steel producers’ output will stay at the regular levels. On the other hand, raw material prices are still on a downward trend and electrical steel prices will have difficulty in rising under such conditions.

Asian Metal: What is your business plan for next year?

Tian: We plan to diversify our operations. We are going to enter the business of splitting and lamination. We want to integrate the trading and deep-processing to satisfy customers’ different needs.