Mid-September will be the watershed for HRC prices in Q4

Asian Metal: Good afternoon, Mr. Wang. Thanks a lot for agreeing to the interview. Please could you briefly tell us about your company.

Wang: It’s my pleasure. Shenyang Qinfen Flat Steel Co., Ltd. mainly deals with flat steel, with the monthly trading volume of around 4,000 tonnes. Major products in our company are carbon HRC, low-alloy HRC and checkered coil.

Asian Metal: Where are your materials sold? How about customers?

Wang: Materials from our company are mainly sold to Heilongjiang province, Jilin province and Liaoning province, and sometimes to northern China such as Tianjin and Tangshan. Around 70% of our clients are traders, and the rest are end users.

Asian Metal: What about delivery from mills?

Wang: Mills failed to deliver materials 100% according to orders influenced by production structure adjustments since the second half of 2016. Besides, they prefer to produce fine steel rather than carbon coils for more profit.

Asian Metal: The price of HRC has soared by over RMB1,100/t (USD165/t) since the middle of May, so, what do you think is the reason for the significant mark-up in the slow season?

Wang: It’s true. The steel market has been running abnormally this year, and it is influenced obviously by policies and situations in the steel futures market rather than fundamental factors such as supply and demand.

Personally I think main reasons for the price soar under the slow market are restrict environmental production and steel production capacity cut policies issued by the government. Though most HRC producers are scaled and have reached the environmental production standard, which enable them to produce with full capacity boosted by the high operating profit of around RMB1,000/t (USD150/t), the supply of raw materials such as steel billet is tight influenced by policies mentioned above. Rising prices of raw materials caused by the short supply will surely help those of finished steel to go up. Anyhow, the entire steel industry chain is integral, that is, the price for one product increases will boost prices of other products to follow suit.

Asian Metal: As far as I know, most customers are inactive in placing orders, despite continuous prices increases. How do you think the price trend in the rest of the year? Will the price be powerless to go up?

Wang: Yes, the price keeps rising, but most customers are cautious about placing orders, and the market runs as slowly as it did before the price goes up. Currently most participants are uncertain about the market prospect when positive and negative factors are taken into consideration. It seems that the price is either to go up further or to fall back. I believe that the middle of September will be the watershed, and if prices could go on rising before it, they will continue on the upward trend in the rest of the year, otherwise, the “peak season” effect will fail to boost the market and restrain the price from rising.

Asian Metal: How about the downstream demand?

Wang: Most of my clients are machining enterprises. According to them, though prices for coils increased by around RMB1,100/t (USD165/t), those for their finished products only witnessed a mark-up of around RMB100/t during the corresponding period, which means narrowed profits. Therefore, most of them only purchased according to urgent needs instead of building large stocks, and some even halted contracting new orders. Generally speaking, the downstream demand shows no signs of getting strong.

Asian Metal: What’s your biggest challenge at present? What about your advantages?

Wang: Although lots of small companies have gone bankrupted in recent two years, competitions from branches of nonlocal large enterprises are fierce. As we all know, large companies have strong financial resources and flexible operating methods, and they have advantages over us in pricing.

However, we have built favorable reputation in the steel industry after 15-year operation and we have regular customers. Besides, we guarantee products quality and provide excellent after sales service.

Asian Metal: Thanks so much for your time.

Wang: It’s my pleasure.