SUMEC International Technology Co.’s business scope covers iron and steel, mineral products and coal. What is your opinion the overall performance of the Chinese steel industry in the first six months of this year? Did anything exceed your expectations in H1?
XQ: From my prospect of view, the Chinese steel industry in H1 has generally shown a downtrend, with crude steel, long products and flat product prices all moving down. All steelmakers, including large scale and medium scale, have been going through a tough period due to slack domestic demand, with their asset-liability ratio being at high levels. For instance, downstream industries have mostly faced the low capacity utilization problem that is mostly not attributed to planned maintenance. Since sales prices have been lower than ex-works prices, steelmakers chose to run maintenance to lower losses. Meanwhile, iron ore inventory at the ports were at high levels in H1 and iron ore consumption moved slowly, exerting a negative impact on the finished steel market.
In addition, demand from downstream industries has continued to be slack, especially the sluggish real estate industry, which has contributed greatly to the weak steel industry. However, the declining trend in domestic finished steel prices and the depreciation of Chinese currency have sped up the recovery of finished steel exports. In the international market, Chinese steel resources have been regarded as very competitive, helping the de-stocking of Chinese production capacity. At the beginning of this year, I did not expect such an improvement in finished steel exports.
Which segment of the steel industry had the best performance in H1 for your company, and why?
XQ: Long products, including rebar and wire rod, grew fast in H1, contributing to the improvement in our company’s profitability in the given period. Moreover, HDG and PPGI products have also seen big increases, mainly due to our efforts in classifying suppliers. For example, once we listed all suppliers’ characteristics, price advantages and product specifications, we could then send the most suitable information to our clients inquiring about specific products. Meanwhile, SUMEC is a large scale state-owned enterprise with financial strength.
As we all know, the steel industry is a capital-intensive industry, and no company can achieve positive performance without a solid financial basis. Steelmakers will come to us actively when they build up trusted customer relationships with us in a long term, and give us better prices to enhance our bargaining power.
In the last two years, the Chinese steel industry has suffered through difficulties, especially for traders in short of liquidity. How has your company achieved steady earnings in the commodity area?
XQ: We have two ways to deal with this problem. First, we try our best to purchase resources from state-owned steelmakers, lowering purchasing risks as far as possible. Second, we purchase raw materials and find factories who focus on forging and rolling to be our processing plants, to decrease risks from advance payment.
According to statistics data, China reported a 20 percent growth in finished steel exports in H1. At the same time, imports have also maintained an increasing trend, and your company has been a significant contributor. Do you have more foreign customers than before? What is their feedback on Chinese products? Compared to the sluggish domestic market, do you think the foreign market will bring more opportunities for your company?
XQ: Actually, we have classified the demand and requirements from our clients; for instance, some clients focus on excellent quality, while some clients are sensitive in prices, so we will make different strategies toward those clients, providing them various products that meet their requirements. Our clients are very satisfied with our service, and send us many inquiries. In this year, we have eyed significant growth in exports. We planned to achieve an operating volume of finished steel of 5.6 million mt, with 1 million mt exporting to other countries. Currently, we are developing markets in the Middle East, South America and Africa to stimulate our export volumes.
Steelmakers need recombination in the local Chinese steel industry, while traders try to figure out how to develop more clients, and the e-commerce platform has been an important one for both. Has your company utilized e-commerce platforms?
XQ: We still use traditional ways to develop customers, such as taking part in professional industry conferences or exhibitions, or gaining more client information from other brokers by giving them commissions. However, we understand the importance of the new e-commerce platform as it is a significant channel to develop business in the Internet era. Therefore, we have been communicating with SteelOrbis, trying to know how to do business and enhance how we gather clients via this useful portal. I hope this will bring me something useful and fruitful.
Generally, the Chinese steel industry still faces an oversupply problem, while at the same time raw material prices have witnessed a declining trend. How does your company view those factors—are they challenges or opportunities? As for the trend in second half of the year, what’s your outlook?
XQ: In my view, the price decline in raw materials and finished steel will bring both challenges and opportunities. Trading activities will not go smoothly when prices have been decreasing, as almost everybody will make purchases in a rising momentum instead of in a declining trend. However, the lower prices will add more competitiveness to the global market. As far as I understand, the Chinese government has been encouraging exports to consume excess domestic inventory and capacity. The overall export environment has been good for us as this will stabilize GDP and bring more job opportunities for our country. I think our business will grow well in the coming period.