Lv Xiaochen: Unpromising steel market prospect in 2019

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

Lv: It's my pleasure. As the distributor of Anshan Iron and Steel Group Co., Ltd. (Ansteel), with the monthly ordering volume of 4,000t, Andayuan Material majors in dealing with steel plate.

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

Lv: Besides Northeast China, we also send materials to Hebei and Shandong. The transportation fee from Shenyang to Hebei is RMB60-80/t (USD9-12/t), so if prices there are above RMB80/t (USD12/t) higher than here, we will consider selling materials there.

Most of our customers are traders, accounting for around 60%, and the rest 40% are end users.

Asian Metal: It's well known that Northeast China has entered winter, so have local mills reduced deliveries? How about the current market inventory compared with September and October?

Lv: As far as I learnt, deliveries from mills have not been reduced yet. Taking Ansteel as an example, there are 7 major steel plate distributors of the mill in Shenyang. The average ordering volume is 2,500t this month, which means Ansteel will send about 17,500t of steel plate to Shenyang in December, basically equaling to that in September-October. Meanwhile, the market stock runs on a regular level due to the balance between supply and demand.

Asian Metal: How about the downstream demand at the moment?

Lv: Generally speaking, the demand for flat steel this year is not as strong as it was last year restricted by the slow downstream industry. Complaining prices for raw materials such as steel plate and HRC rose too much while those for finished products only increased a little, which means profits were narrowed obviously, most end users were inactive in purchasing, with wait-and-see attitudes. Besides, frequent prices fluctuations of steel plate and steel raw materials also weakened end users' purchasing activity to a large extent.

Asian Metal: Prices for steel plate showed a general upward trend in the first nine months of 2018, with the total markup of about RMB400/t (USD58/t). However, they dropped by approximately RMB600/t (USD87/t) in the solely of November. What do you think are the reasons for the sudden and sharp price decline?

Lv: Absolutely. Prices for all the finished steel kept going up from January to September of the current year, and those for steel plate were unexpectedly higher than those of HRC. However, it was obvious that the market failed to warm up dragged by the weak demand from downstream industries such as automobiles as well as home appliance.

Personally, I think the price increase before September was mainly boosted by the positive expectation for the production cut during the heating season in North China. However, the signal of the environmental protection policy loosening became clear when it entered the middle of September, weakening market participants' confidence and leading to a sharp price drop amid the slow market.

The price decline in November was a kind of self-adjustment of the market, though the markdown was unbelievable. Meanwhile, the negative outlook caused by the trading war between United States and China also weakened market participants' confidence.

Asian Metal: How do you think the demand and prices for steel plate in 2019?

Lv: Personally, I do not think the market performance will improve obviously next year. Though the government released series positive policies for construction steel to reduce the negative influence caused by the trading war, those for flat steel were few. We have not seen any signs of improving for the downstream industries such as automobile, home appliance and shipping by now. Besides, overseas trade protectionism has risen again, resisting China's steel exports in various ways. Taking the background of internal and external troubles, I deem prices for steel products are powerless to hike significantly.

Asian Metal: Currently the whole steel industry faces serious challenges. What do you think steel enterprises should do to adapt to the new normal? Do you plan to expand the business next year?

Lv: To be honest, our products are too simple. We plan to add the low alloy steel plate, HRC and rebar in 2019, and will continue to cooperate with Ansteel.

The steel market has been unpredictable in recent two years, and we are treading on thin ice. Taking this year as an example, prices rose unexpectedly in the traditional low season of July and August, while they kept narrowly stable during the "golden September" and "silver October", and dropped to the bottom after that.

I think enterprises from top to bottom should pay more attention to economic situations both at home and abroad, so as to achieve an accurate prediction of the future market and seek the highest profits. In the meantime, we should extend our trading models. For example, the e-commerce is a new kind of selling model, by which traders could sell products both on the line and in the spot market.