Liqingxin: High productivity, narrow margin, both mills and traders of HR strip are struggling

Asian Metal: Good afternoon, Mr.Li! thank you for your support to Asian Metal and accepting the interview. Well, could you please give us a brief introduction of your company and I know it is one of the biggest trading companies in Guangzhou.

Li: Ok. Guangzhou Zhongyi Trading Co., Ltd and Guangzhou Gangyi Materials Co., Ltd belong to the head office-Zhongyi, and we are mainly dealing with narrow steel strip from Guofeng Steel and Buxiu Steel in Tangshan, Hebei Province besides we also have wide steel strip from Taigang Steel in Shandong Province.

From 2007 to 2009, the total contracted purchasing quantity of our company was more than 25,000t every month, but the market condition became unsatisfying after 2011, so we cut it to less than 15,000tpm.

Asian Metal: Ok, thanks for your introduction. Now, the steel market has been sluggish for quite a long time and the demand from downstream customers is weak, so could you talk about the market situation and what measures will you take under such a condition?

Li: Yes, I know. After 2009, traders found it hard to make profits like before, and the business was harder to run. Since 2011, there has been uncommon phenomenon that some traders lost money. To ensure the office run well, the most important thing is not to expend scale blankly. We cut the Contracted purchasing quantity from 25,000t to 1,5000t, to be honest, affected by the dim market condition these two years. We traders should be very cautious and make the right decisions, so that our companies can run normally. There is one more point I feel I ought to touch on. It is very important to keep good relationship and cooperation with downstream customers. We take the good faith as an objective, so we never change prices and delivery date after we promised our customers. Even there is a price increase, we won’t go back on our words, and that is why we have so many regular customers.

Asian Metal: Ok, do Guofeng steel, Buxiu steel and Taigang Steel provide some subsidy policies for agents? The market is dim, so in your opinion, what factors put bad influence on the market?

Li: Actually, there is no allowance from these mills, but they can provide some discounts if we place large orders. Affected by the fluctuating price of raw material and dim market, these mills are even at a loss some times, so they are unable to keep the traders’ benefits. Even though there is allowance, it is meaningless because settlement prices are high. Thus, subsidy policies get less and less.

As for the current dim condition, I think the mainly factor is “high capacity of China”. To avoid losses, all mills do not stop production, and maximizing yield means more profit. However, the demand from downstream customers is limited, thus those downstream industries can not consume so big outturn. In the meantime, we should not judge that it is the weak demand makes the market slow. Besides, the export of narrow strip steel is restrained, so it is difficult for the price to increase. If the output won’t be restricted legitimately, the market would difficult to recover.

Asian Metal: Yes, right. Well, do you have any development plan in years to come? What’s your opinion about how to survive in this tumultuous environment?

Li: Yes, we do plan to do industrial transformation in the near future. More transparency in the market certainly would help, but it also has negative effects. Downstream customers know the production cost and freight charges exactly, so there is narrow profit margin for traders as customers prefer the lowest price. Sometimes, we just purchased large quantities of materials at high cost from the mill, but the mill cut list prices when the goods were on the way to Guangzhou, thus we had to follow suit as customers did not accept such high offer. That is why we lost money some times. Under such a condition, traders have a hard time and mills’ margins get less. Though we face so many difficulties, we won’t give up this business. We plan to transform as we have very good relationships with banks and downstream customers. We will try some other high-profit industries in the near future. No matter how dim the market is, there is possibility to take off if you grab the opportunity.

We kept a good sales for ten more years as we take good faith as the objective to develop new creation enterprise service chain. Prices in the market do not have much difference, so sincere service is very important. We have very good relationships with banks and downstream customers, so we keep cash flowing. We take serious attitude towards after-sale service, so some customers preferred to place orders with us even though others' prices are the same.

Asian Metal: Okay thank you for your explanation. The Chinese government won't loosen measures aimed at curbing real estate prices, so do you think it will put negative influence on the market of steel strip?

Li: Well, a more strict policy to limit house purchases will influence the market to some degree. Of course, the purpose of such policy is not to strike the steel market, but it cannot be denied that it is a bad news for building materials market. Building materials market has close relationship with real estate, so many traders gain RMB5/t, which is less than that of peddlers who sell seafood in food markets. But I think it puts less influence on the market of steel strip.

Asian Metal: Thank you again for accepting the interview and wish everything goes well for your work in the future.