Construction steel prices to move up in Q4 supported by demand recovery

Asian Metal: Hi Mr Gao, thanks a lot for taking part in the interview. Please give an introduction of your company.

Mr Gao: Shanghai Jintong Materials Industry Co., Ltd. is a wholly-owned subsidiary of ZMMC, a member of Zhejiang Materials Industry Group Corporation (ZJMI). We are mainly focusing on steel trading business especially construction steel trading business, ranking the top 50 companies for construction steel trading in Shanghai.

Asian Metal: What are steel mills you ever cooperated with? How about your trading volume?

Mr Gao: We mainly cooperated with steel mills in Northeast and North China. We cooperated with steel mills in Northeast China for a long time and we have done that with Jianlong Group, Xilin Steel, Jiachen Steel and Wuhu Xinxing Ductile Pipe. In addition, we used to be a big agent of Jingye Steel, Laiwu Steel and so on. Currently, we are the agent of Jianlong Group, Xilin Steel, Jilin Jinsteel and Wuhu Xinxing Ductile Pipe. Our trading volume is no less than 400,000t per month and the stocks range from 10,000t to 50,000t in low and high seasons.

Asian Metal: Is your company doing other business except construction steel trading? What is your plan for improvement?

Mr Gao: We are mainly focusing on steel trading, assisting with physical distribution. We used to deal with distribution to end users during 2013-2016 and transferred this part to our brother company after that. By the end of 2019, we restarted the business for distribution to end users and we are supplying materials to Fozhou-Xiamen Railway.

We are expanding the team through talent introduction and adding business for flat steel products, including trading and physical distribution. Based on the market in North China and starting from Tianjin, we would develop and expanding flat steel trading business by assisting with the physical distribution.

Asian Metal: What is the risk for construction steel market brought by the COVID-19 in Q1 of this year?

Mr Gao: Personally, I think the biggest risk is that the market was frozen like it has pressed the pause button. We have no idea when the market would be open and there would not be any buying or selling activities during that time. I remembered that construction steel prices dropped by around RMB300/t (USD42/t) without transaction when the market was going to recover. Of course, this is not the biggest risk as prices would rebound to the reasonable level when the demand grows. However, to most traders, the biggest risk is the suspension on logistics and cash flow. By the end of February, the warehouses in East China finally began to resume work and cargos could be unshipped and transferred to warehouse. Even though there were many stocks in warehouses, steel mills did not stop production during that time. Most traders had to complete the deals with steel mills by bearing increasing risks of losing money.

Asian Metal: What are your measures to reduce losses after the COVID-19?

Mr Gao: We had a conclusion under the situation that the demand for construction steel was delayed but it would not be destroyed. As the demand for construction is mainly from infrastructure construction and building construction not like that for industrial steel, which rely more on exporting with more uncertainties. What we need to do is try to ensure cash flow and reduce losses caused by friction loss.Firstly, we need to transfer the stocks to cash and then increase the capital turnover. After that we could have the chance to gain profit when prices begin to rebound in following days.

Asian Metal: In May, construction steel prices rebounded with high supply and high stocks. What do you think is the main reason for the reason?

Mr Gao: In late March, the demand from building sites began to recover. The daily sales volumes in major markets were higher than those at the same period of last year, which reflected that the demand was delayed but it was not destroyed. In May, most projects in China began to be in operation and the process needed to be accelerated. As a consequence, there were concentrated bursts in demand, which also exceeded expectations. It has been the best time in May for construction steel consumption this year.

Asian Metal: Rebar prices in East China have been lower than peripheral regions during May-Jul. What are main reasons for this?

Mr Gao: In my opinion, the price situation in East China reflected the fundamentals accordingly. Taking Hangzhou as an reference, the low price was dragged down by sufficient supply from steel mills and high stocks there. We have talked that even though the demand exceeded expectation in May, stocks in Hangzhou were really huge. What's worse, it is the rainy season in June and July, so the pessimism rose with the demand softening. In addition, most traders were holding some stocks with cheaper purchasing cost and would like to transfer to cash when the market outlook is cloudy. Taking all factors into consideration, prices of rebar in East China are easier to fall than to increase during May-Jul.

Asian Metal: How do you think the construction steel market in East China would perform in H2 this year?

Mr Gao: In my opinion, the construction steel market in East China performed better than expected this year. From the demandpoint, it was rainy season from June to August, which caused sharply reduced demand for construction steel in East China. From the supply point, during Jun-Jul, there was no profit for materials delivered from other regions to East China, so the supply also reduced obviously. In addition, most market participants had the prediction that stocks would keep going up in the traditional low season, which did not continue to negatively affect the market. During Jul-Aug, construction steel prices in East China stayed weakly stable and would go into another period of moving up with the approaching of golden September and silver October. In the H1 of this year, most projects' operation was delayed due to the COVID-19 and heavy rain in southern part of China. It is predicted that the demand for construction steel would grow gradually in Q4 of this year, which would support prices to move up accordingly.