Construction steel prices to stabilize in Q1

Asian Metal: Hi Mr Zheng, thanks for taking part in the interview with Asian Metal. Please give a brief introduction of your company.

Mr Zheng: It's my pleasure. Our company entered construction steel field since the 1990s and ever cooperated with Guangzhou Steel, Shaoguan Steel, Xianggang and Guixin Steel and so on. We are mainly focusing on construction steel trading business now. Our customers are mainly from infrastructural projects, frame reinforced and some industrial factory buildings. We provide high-quality of sales, delivery as well as reference on the market price prediction for our customers.

Asian Metal: What are your cooperative modes with constructors?

Mr Zheng: We can accept different cooperate modes with constructors according to the situation of cash flow or construction schedule. For some projects, the constructor needs to make certain progress to apply for payment with the proprietors. At this time, we may need to invest more funds. Sometimes when the constructor has enough cash, we will burden less pressure from capital cost. The mode of cooperation with constructors is relatively flexible. Generally speaking, they need to make the payment 45 days later after goods arrive in building sites. But sometimes it is common for them to make payment in advance if they get some funds. Then the capital occupation cost will be calculated according to the actual number of days. This option is well accepted by many construction bosses.

Asian Metal: This year the government became stricter with shipment especially overload. What does this bring to the market?

Mr Zheng: The overload restriction changed a lot in steel market. The cost on transportation increased but the distribution efficiency went down. However, it will reduce traffic accidents, which brings social progress.

Asian Metal: In winter, it is the traditional low season for construction steel in North China. Are building sites are all in full operation in South China?

Mr Zheng: It did not rain too much after summer this year, so the objective condition for the construction was very good in South China. However, under the overall slow development of economy, there were less sufficient projects this year compared with past years. The demand for construction steel from the real estate shrank obviously. With the Spring Festival holiday approaching, some building sites are going to shut down soon.

Asian Metal: Construction steel prices rebounded sharply and unexpectedly in November this year. The market in South China witnessed the biggest markup. Rebar prices approached around RMB5,000/t (USD716/t). What do you think are main factors for this?

Mr Zheng: The sharp rise was mainly supported by tight supply in South China, pollution curbs in North China as well as the rebound in the futures market. It was also a result caused by some hype. If we analysis on market situation and production cost, the market would not see so big markup.

Asian Metal: After the sharp rise in November, prices began to fall back gradually and rationally in December. Did the huge delivery from North China play a major role in cooling down the market in South China?

Mr Zheng: The increasing delivery from North China is the direct reason for prices to decrease. In November, prices soared in South China but the markup in North China was limited, which caused big price gap between South and North China. As a consequence, more materials from North China swarmed into South China, where prices should fall back on increased supply.

Asian Metal:Are traders active in building stocks before the Spring Festival holiday? How do you think the market will perform in Q1 of next year?

Mr Zheng: Most traders hold cautious attitudes towards building stocks before the long holiday. In my opinion, prices will run relatively stable in Q1 of next year. First, the demand from downstream industries is not strong enough, which will restrict prices from moving up sharply. Second, most steel mills arrange production according to their sales, which will help to maintain prices at reasonable levels. Third, most demand for construction steel is from the government's infrastructure construction, whose investment cost is relatively steady.