Wang Jian: Sticking to integrated services in steel scrap industry

----Interview with Wang Jian, vice-president of Tianjin Material and Equipment & Metal International Trading Co. , Ltd.

Asian Metal: Good morning, Mr. Wang. Thanks for your coming today. I have known that your company has done well in flat steel sector, so why are you stepping into steel scrap? And how do you open up your business in this area?
Wang: In fact, our company is the Metal Department of Tianjin Material and Equipment Group, mainly doing business in flat steel and involving in coal, steel rail, iron ore, etc. We have turned to steel scrap because we have found that steel scrap is a sort of Urban Mining, a promising industry in the long-term; meanwhile, using steel scrap for steel-making is an environmental friendly choice and a good development for raw material in short-process steel-making.
For future market, we have founded favorable supply and sales channels. Over 30 steel mills, which are established companies in China, are our suppliers and regular customer of flat steel and steel strip, such as Anshan Steel, Benxi Steel, Baotou Steel, Shougang Steel, Hebei Iron And Steel Group, Shagang Steel, Jiujiang Steel, etc.
Due to the sluggish steel market and reducing profits of steel mills, we barely gain profits as these steel companies which we underwrites the finished products have poor margins. After all, as a service enterprise, we have established our sale and stockpile networks, so we take the advantage of integrated service. Why not supply raw materials such as coal, coke and iron ore to steel mills? Considering the special character and superiority of steel scrap, we chose the business and we have confident to be a top five of steel scrap trading company in China.
Asian Metal: As far as I know, you started business of steel scrap from 2010 ever since when steel industry have kept sluggish. How do you deal with the sluggishness?
Wang: In my opinion, we should find opportunity in the crunch. All serious crises both at home and abroad are overlapping now, making a worse economy than in 2008, but we have been well prepared to cope with it. We mainly purchase domestically and sell products according to demand of steel mills. Therefore, the opportunity is even better under such crisis.
Our orientations are both in providing service and in getting more resources by becoming a shareholder, which is our leading direction. In addition, we have determined to manage all the difficulties so long as we have chosen the promising industry. After talking with some insiders, I have acknowledged that all the large trading companies of steel scrap are hurt by the market this year, so we are focusing on improving internal strength at present. We communicated with some relative industries and steel scrap association previously as well as sales and purchase officials of steel companies to learn experience and find partners. Besides, we did some businesses of steel scrap.
We found that there are some problems in this industry. One of the problems is about the system: steel scrap is not the best choice for steel mills which try to reduce cost and increase profit. Steel mills will choose iron pellet firstly, imported or domestic iron ore next, iron then, and steel scrap the last. Therefore, the steel scrap industry is struggling. The other is about tax: we have no longer enjoyed the preferential tax rebate policy since 2011, and it is difficult for large state-owned enterprises like us to cope with deals which do not need receipt and which involve business separating tax and receipt. However, we will stick on steel scrap business as long as the overall trend keeps unchanged.
Asian Metal: The value-added tax was fully collected and returned by 70% in 2009, and by 50% in 2010, while the preferential policy was finally cancelled in 2011. As steel scrap industry has been slow over the past two years, the government set out the Entry Criteria for Steel & Iron Scrap Processing Industry, and may allow some privilege on tax policy for the accessed companies. So are you going to establish a processing and distribution base of your own?
Wang: Steel scrap industry needs to be encouraged by these preferential tax policies as the industry is developing and is vigorously supported by the government and steel scrap is an environmental friendly material for steelmaking.
However, as the value-added tax has been collected in full amount since 2011, steel scrap industry originally with meager profit would suffer a great cut down of margin. Some steel scrap suppliers adulterate fake commodity, leading to serious negative influence to steel companies and the whole industry. In order to set a solid base in this area, we plan to establish our own steel scrap base and complete the industry chain of resource recovery, processing and distribution. We are going to work together with Fangtong Distribution Company, an established northern Chinese company in steel scrap import and ship recycling.
The government is devoting to found large regular processing and distribution bases. We plan to cooperate with over 30 processing and distribution bases which are listed by the National Steel Scrap Association and another 20 large scaled ship recycling companies. Through the investigation, we have found that we cannot achieve our goal as soon as possible if we are not equipped with full-fledged technology, professional staff and sufficient experience. Therefore, we prefer to cooperate with far-sighted ones through joint venture, reverse stock split and recombination.
China is the largest consumer rather than the largest producer of steel scrap. But utilization rate of steel scrap has declined this year during the operation. Most companies are saving cost with converters in steelmaking at the cost of environment pollution instead of maximizing utilization of steel scrap. This is a problem to be paid attention to. Hence, I want to appeal to the government for support policy and industry standard from the government.
Asian Metal: As the steel scrap industry is growing and concentrating, which advantages does your company have in steel scrap trading?
Wang: I think we have three advantages：
Firstly, as we have been staying in the industry chain and never deviated from the principal works, we are familiar with all the links of the chain. With expedite downstream distribution channels, we have found many clients of steel strip and steel flat. And these are where many steel scrap traders lack of advantage. Meanwhile, as we are integrated service industry after all, we decide to buy and sell finished products of steel mills as long as we supply steel scrap, iron ore, coal and coke to them.
Secondly, as a part of a large group company, our company is competitive with great internal advantage, being able to have strong influence on both at home and abroad. Domestically, we have braches in Guangdong, Wuxi, Nanjing, Hebei and Beijing; for oversea, we established offices in Europe, Vietnamese, Canada, Australia, the USA, South Korea, Japan, etc.
Thirdly, the government provided more financial help because we have been listed in the World Top 500 in 2012.
Asian Metal: Steel scrap market has slightly rebounded recently in China since November comes. Where do you think the steel scrap market will go?
Wang: I thought the market will keep declining this year, but actually I find that I was too pessimistic. I had just gone too far about the economic situation. Policy is still favorable, so I believe that the overall market will remain stable after the 18th CPC Party Congress and the American Election. There will be a lot of uncertainties both inside and outside the market, such as the closely-watched real estate industry. If the real estate industry is prolonged to be absent from significant recovery, the relative industries would keep be bogged in the poor situation. In addition, taking the season factor into consideration, I believe that steel scrap market will fall slightly in the future. The general market is likely to resume in March or April, 2013.
Asian Metal: Thank you again for your cooperation. Wish Tianjin Material and Equipment & Metal International Trading Co. , Ltd. a flourishing business.