Shang Zhenhua: Cautious about future development of steel and steel scrap markets

Asian Metal: Thank you to accept this interview. Would you mind introducing the main products and steel scrap consumption of your company?

Shang: Liaoning Yifeng Steel & Iron Co., Ltd is a hi-tech enterprise with steel research, production and sales. Our company belongs to Liaoning Jin chang Mining Group, mainly focusing on rebar. The capacity of our company is 600,000 tons per year.

We consume about 500,000-600,000 tons of steel scrap each year. To specify, the consumption of aluminium block 08 is about 300,000 ton and that of other materials is about 200,000-300,000 tons.

Asian Metal: Where does your company purchase steel scrap?

Shang: Current we make the purchase mainly from Liaoning Yifeng Mining Co., Ltd. Its supplies are mainly from Heilongjiang, Liaoning and Jilin. We also cooperate with customers in Hebei and Tianjin. With the cooperative principle of limiting the cost within reasonable range, we can purchase steel scrap from suppliers of the whole nation.

Asian Metal: Most steel mills use steel scrap as the raw material. How do you think of the advantages and disadvantages?

Shang: We mainly use intermediate frequency furnace, whose main raw material is steel scrap. As is known to all, steel scrap is mainly used in short-process steel making technique. In the long term, short-process steel making technique will be adopted by most steel mills; however, it is still hard to be popularized in China considering the current domestic development.

However, it is the pricing trend of steel scrap that affects steel mills’ manufacturing techniques. That is to say, steel mills will enlarge the purchase when the cost is lower, so they will consume more steel scrap; otherwise they will have to cut the purchase. We can make the concrete analysis from the following aspects.

Firstly, there are some advantages considering the whole social development process.

1. Steel scrap is a kind of renewable resource with large supplies.

2. During the process of production, its waste will be less harmful to the environment.

3. The 12th Five Year Plan pointed out that the government encourages short-process steel making technique and strives to development it.

Secondly, there also exist some disadvantages considering the status quo of Chinese steel industry.

1. Steel-making technique determines the consumption of steel scrap. Most domestic steel mills consume less steel scrap by using long-process steel making technique. There are not too many supplies available in the market, which limits their production.

2. Cost of making steel by using steel scrap is higher than that of long-process steel making technique.

Asian Metal: Steel market continued to see significant downturn from the end of Q3 2011. Following the trend, steel scrap price also kept moving down. What are the reasons in your opinion?

Shang: One the main reasons is the strengthening of imbalance between supply and demand. Steel price will sure to decrease as end demand for the steel remained dim. Steel scrap market is no exception.

Asian Metal: Steel capacity is experiencing an ever-increasing oversupply despite the ever-strengthening macro-control. How would you comment on this strange phenomenon?

Shang: Firstly, government’s policy-related guidance on oversupply in steel industry is favorable, but the effect will be tiny. Secondly, local guidance still has greater influence, so it will be difficult to regular the imbalance between supply and demand by adjust capacity. To sum up, it is the status quo that determines enterprises’ capacities.

Asian Metal: The government has been encouraging annexation and reorganization among enterprises in steel industry and closing down outdated production facilities. Our nation is also paying more attention to steel scrap industry. What is your opinion on the centralization and specialization of steel scrap industry?

Shang: The centralization and specialization of steel scrap industry is an effective development pattern. For example, Liaoning Yi feng Mining Co., Ltd is a subsidiary of Liaoning Jin chang Mining Group. The future development of the group has two sides: its steel mills only focuses on steel making and processing while raw material supply and import & export trade are conducted by the trade company. Generally speaking, one enterprise will achieve centralized and specialized development only by continuous improving and reforming.

Asian Metal: What are the suggestions you give to deal with current sluggish situation of steel industry?

Shang: Timely adjust the capacity according to development orientation and customers’ demand.

Asian Metal: At last, would you please give your expectation on steel market and steel scrap price in Q3?

Shang: No optimistic expectation will be given to the market in June. Market price will keep moving down and we will be cautious and work on a wait-and-see basis.

Asian Metal: Thank you again to accept this interview. Your expectation and suggestion will be of great help to market participates in steel industry.