Xin Zhiguang: Keep cautiously optimistic about pig iron market in 2013

Asian Metal: Thanks for your interview, and firstly, please have a brief introduction about your operation and major business.

Xin: The company operates as usual at present. Our major business includes six parts of international trade, pudding, steelmaking, rolling and casting. I set these six parts into two sections: international trade and industry production. On international trade, we mainly import iron ore and we have set offices in Singapore, Beijing, Qingdao, Rizhao and Tianjin. On industry production, we hold capacities of 1,000tpd of iron, 3,500tpd of steel and 4,000tpd of rolling steel; casting production is not listed in the statistics from sales company as it belongs to independent accounting part.

Asian Metal: Pig iron prices kept decreasing in 2012. What is the reason for the depreciation?

Xin: Values reflect market trends. I think the sluggish Chinese manufacturing industry due to dim economy is the major reason for the depreciation. Chinese economy slowed down last year and the government controlled funds in order to suppress inflation. Values will decrease with low demand due to limited production and capacity caused by sluggish manufacturing industry, a base industry, due to the softening economy.

Asian Metal: Iron prices increased after the Lantern Festival in tradition, while values increased on the first work day after the Spring Festival this year, so what is your opinion about this?

Xin: I think pig iron prices increased due to following reasons:

Firstly, market sentiment. Traders remain impetuous at present. The market is similar as that of last year with early appreciation. Pig iron prices decreased after the short increase after the holiday and kept decreasing until the rebound in 9-10 with recovering steel industry. Pig iron prices rebounded shortly after the holiday due to the high imported iron ore prices. Many enterprises faced with losses, even long-term losses; traders expected pig iron prices to increase after the Spring Festival due to the favorable news.

Secondly, costs support. Traders hiked prices as they kept optimistic attitude about the market in the first week after the holiday and some small steel mills were willing to replenish inventories; imported iron ore tenders increased to USD160/t due to rising inquiries. Rebar future shares decreased last Thursday and Friday due to the five policies on real estate industry, added by unimproved downstream demand, resulting in sluggish sales about finished steel products and steel mills kept cautious on procurement due to thin margins with high iron ore prices; some steel mills suppressed prices, while a few domestic dressing plants resumed production and traders are unwilling to sell products, resulting in stagnated supply and demand.

Thirdly, policy effect. Source stated that new leaders and government will release some favorable news to stimulate economy after NPC & CPPCC, while demand remained unimproved as the Spring Festival has just passed and NPC & CPPCC, have not been held yet; traders expected market to rebound this year, while I this values will increase when new leaders come, not by now; most traders expected prices to increase after February 15th, but I believe values to decrease.

Asian Metal: pig iron prices keep increasing, while raw material prices increase even faster, so iron plants hold meager profits, so what is the reason?

Xin: This is a common failing in Chinese steel industry, iron plants, steel mills and rolling mills have this problems. Overcapacity limited industry development, resulting in lower prices. The major problem is that foreign miners make speculation on iron ore prices due to the situation of domestic steel industry. Chinese traders are independent with low industrial centralization, while imported iron ore prices remained high, resulting in meager profits in the whole industry.

Asian Metal: some traders intended to expand capacity despite the overcapacity, what is your opinion?

Xin: This is the truth and we are building new furnaces, which reflects the nonfeasance of the government as it turns a blind eye and relative sectors are also out of control; for instance, on the supervise of steel industry, a company should set up a project and take construction after the approval previously, while companies can construct first and then set projects and the government should be blamed about this.

In addition, most iron plants are expanding capacity with losses. For instance, some companies want to expand as enterprises will merger in the future. Also, there are some companies who hold small furnaces want to expand furnaces otherwise they may be eliminated, which lay weight on overcapacity. Many companies expanded capacities, showing that national fund is loose with easy investment. I realized that iron plants set many projects although they may face with losses as traders will invest projects due to the loose fund.

Overcapacity results in cutthroat competition and losses of the whole industry which will not rebound only rely on the comprehensive operation. The government decided to eliminate backward capacity for several years without any action; the solutions of pollution problems are mainly flubbed without implementation. Medias and other aspects said nothing about the haze before the holiday on steel pollution; actually, power plants and steel mills are major pollution sources along with automobile exhaust; no media said a word about steel industry pollution as government protects local industries.

Asian Metal: What is your opinion on the market in 2013? How about the values?

Xin: I personally think the price of pig iron will show a spiral upward trend without emergency. As we have talked about the margin profit and even losses in iron plants, enterprises focus on profits. Meanwhile, if the future price of imported iron ore shows no marked fluctuation, the price of pig iron will fluctuate upward. But, if the imported iron market collapse or the government releases great regulation or control, especially quite large regulation on capacity, small enterprises might be urged to halt production. Then it is hard to judge the price. This is what I concern most. As for the growth space of the pig iron price in 2013, it is hard to say. In my opinion, prices are determined by the demand, but currently there is no demand. If the economy in our country develops well and is regulated optimistically under the guidance of the new leaders. As long as the economy rebounds, the manufacturing industry will follow suit. Then it will push up prices of pig iron as well as casting.

Asian Metal: What is your plan in 2013?

Xin: We plan to improve the marketing management, focus on market trend and product structure adjustment. We will adjust production proportion based on the profits. For example, we will expand plate production as we consume 6,000-7,000 tons of molten iron per day. In addition, high-speed wire rod will be putted into production in Q4 this year, but it remains oversupplied in Handan market. We will search for more valuable varieties according to the specs and qualities.

Asian Metal: Thanks for your cooperation and wish your company steps a further upstairs!