Wu Peiji: Prices of flat steel is likely to bounce off the bottom in April

Asian Metal: Good morning, Mr Wu. Thanks for accepting this interview. What kind of steel business does your company involve in? And what is the sales scale?

Mr Wu: We mainly sell HRC and steel plate with the specification of Q235B. Besides, we also sell CRC, shipbuilding plate and so on. Our company is the first level agent of many famous domestic steel mills, such as Ansteel, Bengang Steel, Tangshan Steel, Lianyuan Steel, Shaoguan Steel, Liuzhou Steel and so on, and signs annual contract with them. The monthly sales volume of HRC, CRC and steel plate is 20,000t, 8,000t and 5,000t respectively. We sell shipbuilding plate produced by Liuzhou Steel and WISCO with the pattern of purchasing according to each real order.

Asian Metal: The steel industry was very gloomy last year and many traders suffered big losses. How is your company?

Mr Wu: We usually concluded deal at the price which is RMB50/t higher than the purchase cost, so the margin is very low. Looking back on 2012, we faced serious price inversion and had some gross profit but no net margin because of higher cost expenses.

Asian Metal: Before the Spring Festival, many traders were optimistic about the forthcoming market and built large stocks. The price increased in the week before and after the Spring Festival holiday. However, it had dropped continuously since late February, which was out of many traders’ expectation. Did your company built large stocks before the holiday? If so, had you considered how to ward off risks of price decline?

Mr Wu: Before the holiday, there were at least eighty percent of traders in Lecong predicted that the price would increase continuously after the holiday and built large stocks. However, at that time, I just held regular inventory because I thought the price was likely to drop. The reasons were that steel mills began to increase output, the global economy was still unpromising and the downstream demand was hard to release in the short term. Actually, the lowest price of HRC in March was over RMB400/t lower than the highest one in February, and for steel plate, the market down was more than RMB300/t.

Asian Metal: What do you think about the price trend of the flat steel in April?

Mr Wu: In my opinion, the price will hit the bottom and is likely to fluctuate upwards in April. In the given period, the benefit of policies will gradually reflect and downstream industries will step up their business, so the demand will see a moderate increase.

Asian Metal: Please explain the support of moderate growth of downstream demand in details.

Mr Wu: The main support is policies from the government. On one hand, the National Development and Reform Committee (NRDC) approved some transportation construction projects planning in September 2012, including 25 urban rails, 13 highway and several container terminals, waterways and so on. The total investment value is expected to be more than 1 trillion yuan. Usually, the interval between approval and implement is six to ten months. It means that these projects approved by NRDC last September are about to begin construction this April. These infrastructure constructions will stimulate the consumption for construction steel and structural steel, which will also pull up their prices. The price increase in construction steel and structural steel markets has positive impact on the flat steel market. What’s more, the commencement of the construction project will also drive the demand for construction machinery, further stimulating the demand for flat steel, such as HRC and steel plate. On the other hand, urbanization and growing investment of real estate are conducive to promoting the growth of demand for construction steel and improving the flat steel market.

Actually, the eight downstream industries, such as constructional engineering, construction machinery, bridge engineering, shipbuilding, automobile, household appliances and so on, is likely to improve after April. So, in my opinion, the flat steel market will performs better in Q2 and Q3. September and October are known as the traditional peak season with strong seasonal demand.

Asian Metal: Does your company deal with the exporting business?

Mr Wu: the export situation is pretty good before 2006, but it is unsatisfactory now. In recent two years, our export business has been narrowing because most of export deals are hard to bring profit. At present, most of our goods are sold in Guangdong Provice and small amount to Guangxi Province and Hunan Province. In fact, more than ninety percent of traders in Lecong only focus on provincial businesses.

Asian Metal: Distributors of Shagang Steel in Hangzhou，Zhejiang Province suspended the sales on March 8 and jointly published an open letter mainly in order to resist the disappointing pricing mechanism. What do you think about this event?

Mr Wu: Traders are forced to do so. Before 2005, it was not easy to be a distributor of a steel mill and traders’ voice was rarely heard. With the expansion of capacity, the competition was more and more intense among steel makers. At that time, the choice of the traders has increased, but the voice is still small.

Actually, the price inversion has existed for a long time, so traders are hard to earn money. What’s worse, in face of oversupply and the fierce competition, traders are in unfavorable situation and have suffered a lot. At present, there are over 300,000 steel traders in China. Only if they join up together to negotiate with steel makers, can they enhance their voice. In fact, the Lecong Iron and Steel Association try to call for local traders to negotiate with steel mills, aiming to make steel mills pricing according to the market performance.

Asian Metal: Hope more efforts like that to establish healthier relationship between traders and steel mills. Mr Wu, thanks for your time and wish you more prosperous business in the future.