Executive Interviews

Asian Metal: Hello, Mr. Wu. Thanks for joining the interview. Please briefly introduce your company.

Mr. Wu: My pleasure. Majoring in steel trading, Tianjin Hongshengyuan Iron and Steel Co. engages in flat steel business, including HRC, CRC, pickling coil and GI coil, with the annual HRC sales volume of around 40,000t. We are the first-tier agent of Baotou Steel, and we also deal with China Railway Equipment Manufacture and Zongheng Steel. We mainly deliver materials to nearby markets such as Tianjin, Hebei and Shandong. About 80% of our clients are end users and the rest are traders.

Asian Metal: How about the HRC stockpile in Tianjin now? Does the market inventory see obvious change compared with the corresponding period of 2021?

Mr. Wu: Generally speaking, major steel mills slowed down production discouraged by the narrowed profits or even losses, and the delivery reduced. Presently, the market stock, I believe, achieves 70,000-80,000t, while it hovered at around 120,000t in the corresponding period of 2021.

Asian Metal: The spread of COVID-19 since early March heavily discouraged the national economy and the whole steel industry. How about the impact on the HRC market? How about the downstream operation now?

Mr. Wu: Absolutely. The pandemic lasts for more than 3 years, and the influence this year remains even more serious than that of 2020. Though the government endeavors to boost the economy by various kinds of stimulation policies, downstream plants fail to operate normally under the pandemic control. Adopting pessimistic outlook for the economy prospect, participants show little interests in investing. Downstream plants have to halt production from time to time since early this year due to the Winter Olympics, the Paralympic Games and the National People's Congress and the Chinese Political Consultative Conference (NPC & CPPCC). Major downstream industries of HRC include pipe manufacture, steel structure and automobile. Presently, the overall demand remains soft and orders for final products keep insufficient. The domestic plants from pipe manufacture and steel structure industries operate by about 70%, while the operating rate of the automobile industry just maintains at around 60%. The lack of confidence and low purchasing activities of downstream customers act as the main problem for the low operation rates.

Asian Metal: Prices of HRC went through the up-down trend in the first half of this year, and dropped continuously in the first three weeks of July, but rebounded since the fourth week of July. They changed narrowly in August and September. What do you think act as the reasons for this situation?

Mr. Wu: Yes, prices of HRC witnessed the total markup of around RMB500/t (USD70/t) in the first four months of 2022. However, the soft demand together with the tightening fiscal policy overseas heightened the pessimistic atmosphere in the market, and prices dropped by around RMB400/t (USD56/t) in May. Prices rebounded in the first two weeks of June as the removal of lockdown in Shanghai strengthened confidence of the market, but then entered the downward trend again from the third week and dropped by nearly RMB1,000/t (USD140/t) till the third week of July. Prices rebounded from the fourth week of July, and fluctuated narrowly during August and September. I believe that the contradiction between the strong expectation and the weak reality acts as the main reason. Series of stimulation policies from the government strengthened market participants' confidence. However, the demand found was hard to recover under the pandemic control. The sudden and sharp drop in the third week of June acts as the qualitative reaction to the accumulation of sluggish demand. The rising market inventory under the steady production of steel mills demonstrated the shrinking demand. Steel mills began cutting production since early July discouraged by the narrow profits or even losses, and prices rebounded in late July boosted by the reduced supply. In August, prices changed narrowly and frequently under the soft demand and low supply. In September, the demand improved and prices went up slightly.

Asian Metal: Prices of HRC almost remained the same in major Chinese domestic markets since early this year, while those in South China should maintain around RMB100/t (USD14/t) higher than those in North China in the past years. Do you think this situation would continue?

Mr. Wu: Absolutely, the narrowed price gap between North China and South China is caused by the production capacity release in South China, the sales performance and the inventories. Considering that more and more steel mills in North China tend to deliver materials locally for the quick capital return and delivery period, we believe this situation might become normal in the future.

Asian Metal: How do you think of the price trend in Q4?

Mr. Wu: Personally, I adopt cautiously optimistic attitude towards the market prospect. The low profits forced steel mills to cut production, and prices rebounded since late July. Besides, I strongly believe the national policy would boost the economy finally. Nevertheless, prices of steel remain powerless to witness significant increase under the gloomy economy, and I estimate they might reach RMB4,050-4,100/t (USD569-576/t) by the end of October from the current RMB3,900-4,000/t (USD548-562/t) and then fluctuate narrowly.

Asian Metal: The whole steel industry faces serious challenges. What do you think steel trading enterprises should do to adapt to the new model? What about your development plan in next few years?

Mr. Wu: Yes, it' hard for traders to run the business under the traditional trading model as the costs are controlled by steel mills and the sales are controlled by customers. Besides, products with regular grades face fierce competition and hard to gain profits due to transparent market prices and sufficient supply. As a consequence, we endeavor to involve in high-end products and transfer the model from the tradation model to the advanced services. Besides, we plan to add the service of logistics and processing so as to extend the industrial chain.