Asian Metal: Hi Mr Li. Thanks for taking part in the interview with Asian Metal. Please make an introduction of your company.

Mr Li: Taishan Steel is a producer for stainless steel, hot rolled coil (HRC) and strip, cold rolled coil (CRC) and strip. In 2020, the company achieved revenue of 49.7 billion yuan, ranking among China's top 500 enterprises for 13 consecutive years. Currently, we own an annual production capacity of 2.0 million tons for hot rolled coil and strip, 1.1 million tons for cold rolled coil and strip, 1.2 million tons for stainless sheet respectively. We are mainly producing cold rolled coil (0.35-3.0)mm*(1,250-1,510)mm and cold rolled strip (0.15-2.75)mm*(740-860)mm, with grades of SPCC, SPCD, Q195, Q235B, Q355B, 08Al, 25#, 35#, 50# and so on. Our products are widely used in automobile manufacturing, machinery manufacturing, light industry, electronics, home appliances, civil, construction and other industries.

Asian Metal: How was the demand for CRC from downstream industries in 2021? What is the difference from the previous year?

Mr Li: In 2021 CRC market performed better than it did in past two years. The overall downstream demand for cold rolled products is growing compared to 2020, especially the demand from new energy auto industry and household appliances, which become the biggest bright spot in 2021. Taking the demand from new energy vehicles as a reference, data show that the cumulative sales volume of new energy vehicles in 2021 is 3.521 million, up by 160% year on year.

Asian Metal: Please review CRC price trend in 2021.

Mr Li: In 2021, CRC prices fluctuated sharply with the gap of around RMB2,000/t (USD314/t) between highest point and lowest point. Let's take prices in Shandong and Hebei as references. In Q1 prices ran steadily at around RMB5,500/t (USD864/t). In Q2 prices went up and down sharply, recording a record high of around RMB7,200/t (USD1,131/t) during April-May. After that, they went down quickly and fell to around RMB6,000/t (USD943/t). In early Q3, prices edged up to around RMB6,500/t (USD1,021/t) and hovered close to this level later. In Q4, prices went down and recorded a decline of around RMB1,200/t (USD189/t) during October-December, after that they began to stabilize around RMB6,200/t (USD974/t).

Asian Metal: What are main factors that support the sharp rise during April-May in 2021?

Mr Li: Firstly, a new pattern of economic development was taking shape, which would mainly depend on supply and demand from domestic market and would promote each other by the international and domestic double cycles. It's definitely good news for the manufacturing sector. At the beginning of the year, the impact of COVID-19 and market sentiment on the steel market still existed. China took the latest measures of "boosting key consumption of bulk consumer goods and promoting the release of rural consumption potential". It clearly proposed that a new round of vehicles will be sent to the countryside and trade-in old vehicles, new energy vehicles will be exempted from vehicle purchase tax, as well as car scrapping and other policies to promote domestic demand. From these measures, flat steels used for automobile industry and home appliance industry benefited a lot. Secondly, the epidemic was effectively under control in China, so the domestic manufacturing industry recovered faster than other countries, which bought time for a quick growth in exports. The implementation of these policies and the influence of export drive are the main factors supporting the continuous rise.

Asian Metal: What are major reasons for the obvious drop in Q4?

Mr Li: Firstly, the price decline of raw materials like coke weakened the support for CRC prices. Secondly, due to relatively considerable benefits, cold rolled products' production was not cut under the production restriction during this time. Market supply increased but downstream demand was picked up very slowly, resulting in the increase of social inventory, stimulating the price decline. Thirdly, the global macro environment remained complex. The Federal Reserve's planned reduction of QE imposed a negative impact on the commodity market. Fourthly, iron and steel price in the futures market fell sharply, which exacerbated the spot market decline.

Asian Metal: Upon the policy of reducing crude steel production, steel mills in Shandong cut production obviously. How about your company?

Mr Li: Because we are a steel mill based on long process of ironmaking, the production cut policy brings great uncertainty to our production organization. Under the policy, we have to bank and gas reduction would affect the reasonable distribution of energy medium in the whole system, which made us unable to play the advantages of our industrial chain and our production costs cannot be controlled. At present, due to the shortage supply of raw materials, we signed contract with Zongheng Steel and purchased around 30,000 tons of cold rolled base raw material per month. Sometimes, in order to meet the consumption of raw material, we also bought from the market by bargaining and lock single part procurement. We strictly implemented production cut policy to ensure annual yield in 2021 do not exceed that in 2020.

Asian Metal: Speaking of production cut, your company put the first hydrogenation mother station into operation last year, which is of great significance to realize "Carbon Emission Peak and Carbon Neutralization". Please give a brief introduction of this project.

Mr Li: On May 23rd, our company officially put the first hydrogenation mother station in Shandong into operation. The hydrogenation mother station is the largest and most complete one in Shandong province, with the characteristics of zero carbon emission, which can be popularized and replicated. When we coked with high temperature, 55% of coke-oven gas is hydrogen. It is utilizing waste gas when we extract hydrogen, whose cost would be much lower. On the one hand, our CR coil and strip production line needs hydrogen as anneal protection gas. Our production cost for CRC would lower if we use hydrogen extracted by ourselves. On the other hand, the station can meet the hydrogen consumption from hydrogen vehicles within the surrounding area of 150 kilometers, and more than 300 hydrogen vehicles will be used in the future. It will use the hydrogenation mother station as the carrier to explore the construction of a demonstration enterprise for clean and green transportation of bulk goods. At present, relying on the complete iron and steel industry chain and good hydrogen energy industry foundation, Taigang Group is striving to cultivate a new development model of "iron and steel-hydrogen energy-city". Instead of burning, hydrogen cars run through a fuel cell to generate electricity, with no carbon emissions.

Asian Metal: What are your expectations for production cut in the coming year? What is the price trend of CRC in Q1 of 2022?

Mr Li: From the current situation, we can expect that production limit will not be removed,so the crude steel output would not be allowed to increase after a period of time, which forced steel mills to develop high value-added products based on the permissible production. It is worth paying attention to that the CRC market price has reached the record high in recent years and downstream customers began to use HGI coil to replace due to the narrowed price gap between CRC and HGI coil. In addition, orders from abroad showed some signs of reducing. CRC market participants worried about price decline and tended to be cautious. Taking all factors into consideration, in Q1 of 2022, the market price of CRC will run at a high level with large range of fluctuation.

Asian Metal: What is your company's plan in 2022 in terms of the developing higher value-added products you just mentioned?

Mr Li: We will explore 0.45-0.5mm CR coil and strip used for household appliance and 0.2mm tin plate next year on the basis of existing output to maintain our own advantages.