Chinese HRC prices might hit the peak of 2021 in May

Asian Metal: Good afternoon, Mr. Gao. Thanks for agreeing to the interview. Please could you briefly tell us about Shanxi Jianlong Steel?

Mr. Gao: My pleasure. With an annual smelting production capacity of 6.8 million tons, Shanxi Jianlong Steel has five blast furnaces and four converters. It reports an annual steel production capacity of 7.0 million tons. We have one 1,500mm HRC production line, with the annual production capacity of 3.0 million tons; one 850mm HR strip production line, with the annual production capacity of 1.5 million tons; and three construction steel production lines, with the annual production capacity of 2.5 million tons.

We plan to start steel pipe production in July-August 2021, with the yearly production capacity of 800,000t. We will launch one CR strip production line affiliated to the 850mm line in October 2021. Besides, we will put in use one CRC, GI and PPGI production line affiliated to the 1,500mm HRC production line at the end of the year.

Besides focusing on steel production, we also endeavor to expand processing and distribution services. At present, we have one construction steel processing line, with the current daily processing capacity of 200-300t. After the second phase putting into production, the annual processing capacity might achieve 500,000t. Meanwhile, Jianlong Group would launch real estate project in the near future, and we will supply most of the steel products for the project. Nowadays, we endeavor to provide mobile deep processing and distribution services. In addition, we have two processing lines for HR sheet, with the daily processing capacity of around 300t. Besides, we have one horizontal and vertical continuous cutting processing line.

Asian Metal: What grades of HRC does Shanxi Jianlong Steel produce? How about downstream industries?

Mr. Gao: We mainly produce carbon HRC, checkered HRC and low-alloy HRC, with the maximum wideness of 1,380mm, matching highly with the CR production lines. We produce about 50% of CR base raw material, 40% of carbon HRC, with the rest 10% of fine steel such as wheel steel, spoke steel, beam steel and pipeline steel.

Our customers mainly come from industries of steel pipe manufacture, CR production, machinery and structural steel engineering.

Asian Metal: Where are your materials sold? How about customers?

Mr. Gao: Located at the junction of three provinces of Shanxi, Shaanxi and Henan, we have a dedicated railway line within the factory and remain near to Tongpu Railway, Daxi High-speed Railway, Dayun Highway and Jingkun Expressway. We deliver materials to Henan, Jiangsu, Hubei, Sichuan, Chongqing, Shaanxi and Anhui.

Shanxi Jianlong Steel acts as the exclusive supplier of R & F Properties in Shanxi and Shaanxi. Meanwhile, we built harmonious relationships with Dayun Automobile, Baoji Steel Pipe, Youfa Steel Pipe, China Railway, Shanxi Construction Engineering, Taiyuan Construction Engineering and Shaanxi Construction Engineering.

We deliver about 85% of HRC to end users directly and deliver around 95% of HR strip to end users. For construction steel, we deliver 45% to end users and send the rest 55% to the market.

Asian Metal: Do you plan to start steel export this year?

Mr. Gao: The subsidiary of Jianlong Group in Tianjin mainly deals with the exports and we talked with them before. We kept keen eyes on the continuous price hike in steel export after the Spring Festival, but we have not exported yet. To be honest, we remain inactive in exporting seeing the long-term delivery and the complicated procedures. We will not consider exports unless the export prices become more attractive than those in the domestic market.

Asian Metal: Prices of HRC increased by around RMB400/t (USD62/t) after the Spring Festival holiday. What do you think are the reasons for the price hike?

Mr. Gao: Personally, I believe that the positive anticipation acts as the main reason for the price increase. The positive control of COVID-19 in China during the Spring Festival holiday strengthened market participants' confidence in the market prospect. Besides, 2021 plays as the 100th anniversary of Communist Party of China. Lots of projects will be started, which encourages steel mills and traders to lift prices in advance. Finally, the USD1.9 trillion fiscal stimulus plan of the United States released capital liquidity and boosted market optimism.

Asian Metal: How about the operation rate of downstream industries at the moment? Do you think the downstream demand in 2021 would get stronger than that of 2020? How do you think of the HRC market in 2021?

Mr. Gao: As far as I learnt, the construction steel industry in North China reports the high operation rate of 70%-80%. However, downstream customers remain cautious about placing orders and just purchase from hand to mouth seeing the quick price increase. Meanwhile, the operation rate of downstream industries of HRC, HR strip and industrial wire rod remains as low as 30% now, and I guess it would reach 100% in May.

At present, the stockpiles from steel mills go down, while those in the market do not increase obviously, which means the demand remains relatively strong. I believe prices of HRC would keep fluctuating narrowly in the remainder of March. With the demand getting stronger gradually from April, prices will rise and hit the yearly highest point ofRMB5,500/t (USD846) in May. After that, prices may enter the downward channel.

Asian Metal: Do you plan to expand production in 2021? What's your biggest challenge at present? What about your advantages?

Mr. Gao: Nowadays, we operate the smelting equipments with full production capacity. Meanwhile, we completed the upgrade and transformation of the converter, the rectangular and continuous casting billet production lines in the middle of 2020. We conducted the one-month upgrade of the old construction steel production line from January 28, 2021. Therefore, we will maintain the steady production line 2021.

The advantages of Shanxi Jianlong Steel mainly reflect in two aspects. One is the geographical advantage. As mentioned before, Shanxi Jianlong Steel locates in the central plains, radiating northwest and southwest, which enables us to deliver steel widely. Besides, the supply of coal and coke remains sufficient as we stay in the distributing center. The second is the group advantage. Jianlong Group has obvious advantages in cost control, direct supply management and transformation of self-owned industries.

We roughly face two challenges at the moment. Firstly, the balance between the inventories of steel mills and the market. By working with other northwestern steel mills, we formulate an inventory digestion plan, and strive to stabilize market prices and endeavor to make the market inventory back to normal by the end of May. We adhere to the principle that we increase the inventory of steel mills rather than hike the market stock pressure. Secondly, the raw material shortage. Dragged by the gap between the smelting production capacity and the steel production capacity, we have to adjust the production of each product every day.

Asian Metal: Thanks so much for your time. Wish Shanxi Jianlong Steel a great success in the future.