Asian Meal: Mr. Lin, thank you for accepting the interview. As we have gained some knowledge of CRDC that you have worked in steel scrap division of eastern China, could you make a brief department introduction?

Lin: As the functional department of business management in CRDC, steel scrap division is responsible for management of steel scrap business in subsidiaries and branch offices in all area which is entitle by the headquarters. There have been 15 branch offices and subsidiaries in eastern China area located in Lianyungang, Changzhou, Suzhou, Xuzhou, Yangzhou, Anhui, Dafeng, Dongtai, Taizhou, Shanghai and Yuyi etc. In 2011, this area created nearly RMB6 billion of sales income by selling over 1.9Mt of various recyclable materials which included over 1.4Mt of steel scrap. The steel scrap is mainly sold to mainstream steel enterprises such as Shagang, Baosteel, Huaigang, Wisco, Xixing Special Steel, Dongfang Special Steel and Nanjing Steel etc. However, the steel scrap material could be unified allocated according to the special requirement from headquarters.

Asian Meal: As a state-own enterprise, does DRCD formulate some development program, focus and goal during the Twelfth Five-Year period?

Lin: We plans to create the national steel scrap recycle network by establishing 10 steel scrap bases and 30 processing and deliver centers during this period, and bases in Luoyang, Changzhou and Lingwu in Ningxia have been completed and put into operation. Besides, a special steel mill will be purchased for stainless steel production. In the year 2013, we will further promote business of sub-purchase and unified sales of recycled steel scrap, taking the material as an advantage of DRCD which could transfer into a superiority of efficiency.

During this period, DRCD focuses on following aspects: Firstly, to establish national recyclable material recycle network through building bases, processing and decomposing centers, terminal markets and collection stations (points); secondly, to establish whole industrial chain by extending businesses to upstream and downstream industry, participating in basic industry, technology development and market expansion; thirdly, to lead the industry stepping into environmental production by insisting on high-standard harmless treatment, focusing on the development of recyclable material treatment technique and guiding the industry to a environmental and sustainable development; on top of that, to establishing company image with principles of standards, high quality and faithfulness, and to create branding resources by innovation, R&D and reaching new high of company development.

At the end of this period, DRCD could form a national net work for dismantle of steel scrap, waste paper, waste home applications and scraped car, earning over RMB50 billion of sales income by recycling and managing 10Mtpy of recyclable material which include 5.5Mt of steel scrap, 3.5Mt of waste paper, 600,000t of waste plastic and 400,000t of scraped ferrous metal. The company could obtain RMB4.5 billion of tax profit and RMB600M of profit.

Asian Metal: Could you make an introduction of other business of DRCD?

Lin: Except steel scrap, business of waste paper, waste plastic, scraped ferrous metal, waste home application and scraped cars also account large share. For instance, Changzhou Base has distinctive waste plastic intensive processing. The shredded, purified, washed and dried PET is supplied to Chanzhou B.P. Chemical Fibre Co., Ltd. to produce high grade fibre with special technique, which could multiply profits. Furthermore, plastic metal polymer is a critical method for waste plastic intensive processing due to high profit from producing vehicle decoration panel by waste plastic.

Production base in Qingyuan, Guangdong focuses on dismantle, trading and marketing of scraped ferrous metal, while those in Linyi, Shandong and Qichun in Hubei are emphasis on dismantle of waste home application etc.

Asian Meal: Steel scrap market stepped into a downward trend after October, 2011, which remained weak until before the same period in 2012. The market experienced a downturn shake in last November. Suppliers are hoping to see some appreciation, and what do you think about it?

Lin: Steel scrap market increased slightly in recent days which will experience another round of appreciation soon. Stockpiles of steel mills before the Spring Festival are critical. Little-to-no deal were concluded during Feb 7-20, as domestic steel mills and steel scrap traders left for holidays, steel mill ceased procurement of steel scrap at port, and domestic steel scrap market was dormant. Steel mills in Jiangsu stockpiled some steel scrap for production during the holiday. Numbers of burden fines kept at around RMB3,000/t before the holiday which could reached RMB3,090/t for material with higher quality. Steel scrap rates dipped by RMB30-50/t after the stockpile, leaving upward space for the market in March. Various aspects stimulated steel scrap appreciation before and after the holiday. Firstly, housing prices gained which boosted the surge in steel market, In addition, numbers of imported iron ore reached USD155/t before the holiday which push the cost of molten iron steel making up to RMB3,200/t, and the trend lasted until after the holiday. Meanwhile, values of steel scrap gained along with the appreciation of coke and pig iron. Thirdly, steel mills have low stock in hand before the holiday due to poor performance last year, so mills will return to the market n the near future which could drive steel scrap rates up. On top of that, loose loan boosted credit increase after the Spring Festival etc.

Asian Meal: As the leading in domestic resource recycling industry, DRCD has lots of influences on steel scrap market in eastern China, so could you make a brief introduction of current steel scrap consumption in eastern China?

Lin: Of course. It is reported that total domestic consumption of steel scrap is 84Mt in 2012, decreased by 7Mt compared with that in 2011 with an average comprehensive unit consumption of 117kg/t. Steel output in Huadong accounted for 30-32% of the total national output; steel scrap consumptions of key steel mills in Huadong: according to statistics from1-9, 2012, key steel mills in Huadong held 15Mt of steel scrap, accounted for 44.01% of total stocks from national key steel mills; steel scrap consumption was 14.984Mt, accounts for 44.58%; steel scrap purchase volume was 7.456Mt, accounts for 52.23%, showing that Huadong steel mills holds the large part in steel scrap procurements, consumptions and inventories, which is related to furnace steel production in Huadong. The decline in benefits from steel mills is the key reason for lower steel scrap consumption in 2012.

Asian Metal: Some said that a new dawn of steel scrap industry will be approached in 2013 after two years of full tax. What do you think about it?

Lin: Tax concession is very good news for steel scrap industry as it could guide a sound industry development, encourage consumption in steel mills and release tax burden and seize opportunities for steel scrap processing and deliver enterprises.

MIIT in China have issued two files, namely, “the Entry Criteria of Steel Scrap Processing Industry” and “the Interim Measure of the Announcement of the Entry of Steel Scrap Processing Industry”. The criteria include: environmental protection, safe production, social responsibility, products quality, scale, technique, facilities and management etc. Standardized enterprises could be approved to enjoy the tax concessions after submitting according to the flow. However, the SAT of China still keeps quiet, so when to release and enterprises involved are still unknown.

According to the definition of steel scrap processing and deliver enterprise, one must be equipped with steel scrap recycle capacity, processing facilities and yard and stable staff, and the enterprise belongs to circulation domain. However, steel mills listed to process and deliver steel scraps belong to steel scrap consumption enterprises. I wonder that the tax concession tends to benefit steel scrap consumption enterprises or circulation domain which has capacity of steel scrap recycling. The issue of the policy might shock steel scrap industry!

Asian Metal: Thank you for your brilliant analysis and wish the course of your company steps a further upstairs, hoping more potential cooperation between Asian Metal and CRDC.