Yang Chen: Steel industry has entered a period where profits are squeezed

Asian Metal: Mr. Yang, thanks very much for accepting the interview from Asian Metal. As we know, your company is the biggest HR strip trader in Wuxi, Jiangsu Province. Could you give us a brief introduction to your company’s main business and development direction?

Yang: Our company mainly deals with HR strip and HRC, and the core business is HR strip. Our company began trading in 2002, and achieved its largest scale in the first half of 2008, when the monthly sales volume was 100,000 tonnes. However, since the price of steel products began to decrease in the second half of 2008, and some traders from Fujian entered the East China market, our company’s sales volume has shrunk to 10,000-20,000tpm. After 2012, when traders from Fujian Province quit the market in East China, our company’s sales volume climbed once more to 50,000tpm thanks to sound operating. We have gained a good reputation with the public in Wuixi, Jiangsu Province, and have built our own port terminal yard. Since the market remains sluggish for the time being, the company’s primary mission is to maintain the brand, and there are no plans to expand the business.

Asian Metal: The price of HR strip in China has been on a downward trend since April, 2014. What are the reasons? What are your thoughts on the market conditions?

Yang: The price of HR strip has decreased by RMB800/t (USD130/t) since April. I think there are two reasons: first, the price of iron ore decreased due to oversupply; second, the excess production capacities for steel products dragged prices down with them, and the price of HR strip decreased as well.

Asian Metal: What are main downstream industries for HR strip in East China at the moment?

Yang: The downstream products using HR strip are welded pipe, CR strip and galvanized strip. Most welded pipe producers located in Qianqiao, Wuxi, Jiangsu Province - “the home of welded pipe” in East China - have withdrawn from the market since they don’t have a competitive advantage. The main downstream industries in East China are CR strip and galvanized strip at present.

Asian Metal: What about the downstream demand? What's the difference between the sales volume this year and that of previous years?

Yang: The demand from downstream industries has shrunk greatly in recent years. Before 2008, the HR strip production in Wuxi, Jiangsu Province catered for the demand from the local market, as well as surrounding cities such as Jiangyin, Jiangsu Province and Ningbo, Zhejiang Province. At that time, the aggregate demand from those areas could reach 1,200,000tpm, including 700,000tpm from Wuxi, Jiangsu Province. However, the aggregate demand from Wuxi, Jiangsu Province is 200,000tpm at present, and surrounding cities such as Jiangyin, Jiangsu Province purchase their HR strip from the port of Jianggyin.

Asian Metal: Do you think the HR strip market will be influenced by environmental protection?

Yang: The environmental protection inspections have weakened the downstream demand. This is because CR strip is the main downstream industry within the local market, and the CR industry is one of the high-polluting industries due to the pickling waste water which can cause water, air and soil pollution. Since Wuxi, Jiangsu Province has become the key region for the environmental protection inspections, some CR strip producers have moved out of the area. The acquisition of new pickling equipment is not allowed, and unauthorized equipment will be eliminated, so the already soft downstream demand will become even weaker. For example, the average output of downstream CR strip producers was 8,000tpm in 2008, and the purchasing volume was 100-200t at a time. But in the past two years, HR strip’s sales performance has been poor. If a CR strip producer received an order of 500t, he would purchase the raw materials for ten orders. In general, a customer’s purchase volume is 20-30t at a time at present.

Asian Metal: Will the government roll out some sort of stimulus this year to boost development of the economy and steel market in 2015?

Yang: The possibility is very small. Since government’s macro-controls to combat excess capacity haven’t had an obvious effect, the principal method of control is market regulation for the time being. The steel market must begin to innovate in the future and some outdated capacity will have to be eliminated.

Asian Metal: Are you acquainted with the market for HR strip in other countries? Do you have plans to expand the business into other countries?

Yang: After 2009, HR strip disappeared from the export market, while some galvanized strip remained. Because foreign welded pipe producers purchase HRC as raw materials, the demand for HR strip is soft. We don’t have any such plans at present.

Asian Metal: Do you have any suggestions for strip steel traders? What are your predictions for the market during the rest of this year?

Yang: Steel trading has now entered a period where profits are being squeezed. Only those traders who have advantages in terms of logistics, storage and low financing costs are able to make a profit. Otherwise, it is likely they will be eliminated.

Asian Metal: Thanks for sharing your views. We wish your company a bright future.