HRC prices likely to go down after Spring Festival

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

Mr. Niu: It's my pleasure. Tianjin Baoxin Technology Co., Ltd. mainly deals with flat steel trading, processing, quality detection and logistics. Our products include HRC, CRC, pickling coil and galvanized coil. Meanwhile, we also help customers to order special grades materials from steel mills.

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

Mr. Niu: Our materials are mainly sold in Tianjin and Tangshan. The target customers are end users, but we also sell on the retail market when there are positive expectations for the market prospect. End users and traders account for 50% each.

Asian Metal: How about the purchasing activity from end users? Is the demand shrinking with the approach of the end of the year?

Mr. Niu: Traditionally, end users usually reduce purchasing volumes four or five weeks ahead of the Spring Festival since there are reduced orders for finished products. The Spring Festival comes earlier this year, so the demand shrinks more obviously.

Generally speaking, the overall demand in 2019 is weaker than that in 2018. The gloomy situation in automobile and home appliance industries dragged down the demand for flat steel to a large extent. Taking our company as an example, our sales volume dropped by 20% on the year-on-year basis in 2019. Considering the gloomy economy, we do not think the market will improve in 2020.

Asian Metal: It's well known that the low stockpile plays the most important reason for the price rebound of steel from mid-November besides the loosening capital policy. Mills tended to produce actively following the price hike. Did the market inventory increase these two weeks?

Mr. Niu: As far as I learn, materials in most domestic markets are in shortage now, and the stock does not witness obvious increase.

On the one hand, though prices for HRC began to rebound from mid-November, the markups were lower than rebar, the bellwether of steel products, and mills tended to transfer limited iron melt for the rebar production, leading to reduced HRC supply to some extent. On the other hand, overloading has been strictly forbidden nationwide since the overturning accident in Wuxi this October, together with the transformation from National IV trucks to National V trucks, both resulting in insufficient transportation capacity and delayed arrival of materials.

Asian Metal: Though prices for HRC fluctuated frequently this year, the changes were narrow, no more than RMB200/t (USD28/t) in the whole year. Besides, the market performance failed to improve in the traditional peak season, but was relatively satisfactory in the low season. What do you think are the reasons for the abnormal situation?

Mr. Niu: Absolutely, prices for HRC hit the yearly highest point in January and February, and kept fluctuating narrowly in the rest of the year. I believe it is caused by the contradiction of the positive and negative news.

Prices for steel products ran at a high level in the first half of the year, and steel mills maintained high operation rates as they did in past two years. The increased supply hit a high point in mid-August, leading to a sudden price drop. Besides, the unreasonably high price of iron ore forced mills to cut production at that time. In addition, not being confident of the market in Q4, traders were cautious about supplementing inventories and the market stockpiles were consumed obviously, so the market price rebounded after the positive policies of loosening capitals released in the middle of November. In the meantime, the currency change as well as the trade war between China and America also affected the steel market.

Asian Metal: 2019 is coming to an end, so how do you think of the price trend after the Spring Festival (January 25, 2020)?

Mr. Niu: Personally, I think the price trend after the Spring Festival depends much on operations of steel mills as well as the market inventory. The earlier Spring Festival this year will make the downstream demand remain weak in the whole February, and if supply from mills keeps increasing, the market price will surely go down.

Not being confident of the market prospect, we plan to only build a low inventory before the Spring Festival.

Asian Metal: The whole steel industry faces serious challenges. What do you think steel enterprises should do to adapt to the new normal?

Mr. Niu: In the business world, "change" is an eternal truth. There is an old Chinese saying, "He who does not advance falls backward". Nowadays, conventional specification products are saturated and less competitive, only by marching into high value-added products can enterprises stand in an unbeatable position.

As a consequence, we plan to explore the high-strength steel and fine steel market while continuing to implement refined services and deepen potential customers in 2020.