Zhu Jiaobao: Policy, savior of struggled steel scrap market

Asian Metal: Hello, Mr. Zhu, and thank you for accepting the interview. Firstly, could you introduce the business scope, cooperative clients and current operation of your company briefly?

Zhu: Certainly. The company is focusing on steel scrap and pig iron trade, while bulk raw material and ferroalloy trade are under preparation. Most steel scrap material comes from large ship scrap from industrial parks and some small enterprises as well as scrap cuttings from each sector, while the rest is collected from Zhejiang, Fujian and Jiangsu etc. Pig iron is from Inner Mongolia, Jiangsu and Shandong etc.

Basing on integrity services and win-win cooperation, we cooperate with steel enterprises along the coast or river such as Ningbo Steel, Wuyang Steel, Magang Steel, Tianjin Steel Pipe, Guangdong Steel and surrounding mid and small mills. Meanwhile, enterprises such as Shousteel, Wisco and Bencheng Steel intend to cooperate with our company as the preliminary trades are under negotiation. More clients will cooperate with us depending on the corporate spirit.

Asian Metal: With a wide range of prospect, does the company form any short-term target and long-term program?

Zhu: The struggled steel market adds uncertainties to steel scrap market, so we may focus on the current business slow and steady. Furthermore, we will endeavor to gain more preliminary negotiations and preserve the current partnerships by combining superiorities with the economic policies oriented market environment. As a trade company, we should make efforts to cooperate with more steel enterprises with the basic of accomplishing sales target and gaining small profit.

Asian Metal: Would you share some opinions about steel scrap market combining the current steel market?

Zhu: Speaking of steel scrap market, steel mills are the most related as steel scrap traders would not gain any profit in the case of zero profit in steel mills. As far as I am concerned, reasons leading to the weak steel market are as followed:

Firstly, the grim economic environment should be blamed and nothing could be done to deal with it.

In addition, the overcapacity in domestic steel enterprises resulted from prolonged disordered development, coupled with the dim economy, resulted in the adversity in the market. I remember that the market has trapped in overcapacity in 2008 when the steel capacity has beyond 600Mtpy in China. While the development and demand could have been suitable if the capacity and output were limited timely. However, the financial crises upset the balance in 2008, and then steel sector shot up to boost economic growth as the government approved projects blindly for economic growth. For achieving high capacity, steel enterprises invested blindly without considering the development, resulting in the current uncontrollable situation.

Thirdly, the layout of steel industry is chaotic with over-intensive local enterprises and similar products as well as improper sales orientation. Unreasonable processes, high delivery costs and feeble limitation from the government resulted in overcapacity, high cost and fierce market competition directly.

On top of that, steel industry should promote circular economic development using renewable resources. Long processes and more increasingly larger blast furnaces have twisted the development of steel industry in China as a newly built large blast furnace present the surge in steel capacity. Each enterprise fights along without overall concept, and relies on imported steel scrap disregard the environment and resources allocation, which also manifests the twisted development. Although China is the largest consumer of iron ore around the globe, production cost keeps showing soaring trend as China does not obtain the pricing and discourse power.

To sum up, I believe that the following aspects should be achieved to help steel industry out of adversity:

① The government should make efforts to rectify the overall steel industry with the hope of economy recovery. Enterprises with high energy consumption, pollution, unqualified products which does not reach standard should be cracked down.

② Steel industry should be laid out regionally and scientifically. To promote circular economy and renewable resources utilization by limiting capacity and production pattern with long processes.

③ Apart from national efforts to boost economy and stimulate consumption, orders of shutting down or limiting exceeded capacity should be issued to tackle the struggled market.

④ Protections and encouragement should be offered to enterprises consuming renewable resources and meeting the requirement of regional circular economic development. Businesses in enterprises should be regulated for protecting economic profits of upstream and downstream sectors.

⑤ In terms of the severe dependence on imported iron ore, senior negotiation institute of imports should be established to resolve problems such as higher iron ore prices and discourse power.

In general, steel mills underpin the market as the supply-demand contradiction between mills and the market determined rises and falls of the latter one. Seeing the prolonged dilemma, both parties will badly injured if enterprises are fiercely compete with each other at random, so it is the time for the government and related authorities taking actions.

Asian Metal: What do you think of the price trend in steel scrap market?

Zhu: Speaking of determinants of steel scrap outlook, economy recover and demand improvement are prior; economic policy should be in place such as supports to enterprises processing and delivering steel scrap which could enhance confidence within the sector. Seeing the current situation, however, steel scrap market sees no sign of recovery. In my point of view, the market will see upward opportunity until after Q4 just like the trend in last year.

Asian Metal: In terms of supports you mentioned above, we known that the majority of domestic steel scrap processing enterprises are endeavoring to meet criteria of steel scrap delivering and processing enterprise for benefiting from value-added tax rebatie policy in the future, how do you think about it?

Zhu: First of all, implementing the entry criteria of steel scrap processing and delivering enterprises is positive. Powerful enterprises are encouraged to gather scattered resources together for uniformed processing and delivery which could push steel scrap industry towards productization and industrialization. Preferential policies should be offered to enterprises in certain scales conforming to industrialization, which could demonstrate the attention and approval from the government to recycle economic development. Enterprises are increasing equipment and investment. In terms of the implementation of above-mentioned policies, it might experience a long process and enterprises should embrace confidence in it.

Asian Metal: If the domestic steel and steel scrap industries continue to develop under the current pattern, what risks should it bring to steel scrap business?

Zhu: Although steel scrap market is a buyer’s market as steel mills have obtained discourse and pricing power due to the increasing steel making cost. So far, the steel scrap consumption has decreased by 40-60% from 18% of crude output to 12%. Furthermore, steel output improved from 500-600Mtpy in last year to over 700tpy with reducing steel scrap consumption, suggesting that long process steel making (blast furnace) by molten iron replaced production by steel scrap. As the pattern should be persisted, steel scrap industry is no longer a sunrise one, let along acquiring discourse power in the market.

If the current situation persists, I dare to assert that the supply will outstrip demand along with increasing output of steel scrap and economic development. China will shift from steel scrap importer to exporter if policies permit.

Asian Metal: Thank you for your excellent analysis. Wish your company a flourishing development and hope to have more cooperative opportunity between your company and Asian Metal.