Zhang Jie: Steel market going through consolidation and adjustments for bright prospects

Asian Metal: Good afternoon, Mr zhang. Thanks for taking this interview. At present, Zhongfa is one of the biggest trading companies in Guangdong Province and plays an important role in the market, could you introduce your line of business?

Zhang: OK, Guangzhou Zhongfa Trading Co. , Ltd （Zhongfa）was founded in 2010 and it is located in the CBD of Guangzhou. Our company has a registered capital of RMB1.000 million. Though it has been established for only three years, core team members have been dealing with trading business for ten years and they possess strong analytical skills to evaluate industry developing trends. The business of Zhongfa can be divided into two parts, steel strip and rebar. The contract volume of every month is 15,000t, and we always finish the target level.

Asian Metal: The so-called “Golden March and Sliver April” of steel market have fell through, and the price witnessed a downward trend in April, so what do you think about the coming market？

Zhang: It is true that the marker did not recover in March and April. The market of this year is abnormal affected by both the world and domestic economic environment and prices of steel products did not go up in these two months. I won’t make arbitrary judgment for the coming market as the market is mercurially affected by factors of futures market and policies from the government. I think the steel market is going through a “Shuffle” period, and it is hard to recover in following one or two years.

The so-called "shuffle" I am referring to is a stage of adjustment in the market. It is unreasonable and abnormal for traders to make shipments at a loss. Therefore, in this process, some enterprises confronted with the lack of funds and the relatively weak strength may be eliminated and the mainstay of the industry will win out. Furthermore, from the perspective of the steel mills, some small steel mills and those with production of substandard will be out in the "shuffle" process, which means that one choice of steel mills is “powerful combination" - to strengthen the cooperation between the steel mills; another one is big mills annexing small ones. No matter how the market will be, we will never give up this industry. In the meantime, we have stable upstream and downstream cooperators and financial advantage, so we can handle the bad market well.

Asian Metal: I learnt that most traders made deals at a loss, will mills give you some subsidies?

Zhang: As far as I know, the mill has not given any subsidies. We don’t force mills to give some subsidies though we will pursue profit. Under the dim market condition, traders and mills are both at a loss, and the mill will lose RMB200/t if traders lose RMB100/t. It is also hard for the mill to run the business. In view of that, we won’t force the mill to give subsidies but we will deal with the business by adjusting our sales strategy. Though the market condition is unfavorable, the sales volume of Zhongfa is 500-600tpd while others find it hard to make deals. It also suggests that Zhongfa doesn’t rely on subsidies from mills.

Asian Metal: There are so many traders in the market with price competition and some smaller traders’ quotations are lower, so how do you cope with such issue? What factors you think make the HR strip market dim at present?

Zhang: Well, the phenomenon does exit in the market, but I don’t think it is an problem. Smaller traders are flexible, but price competition is advisable and it will set them alight.

Traders who cut quotations sharply will dash upon the steady market and their sales volume is likely to get better, which will force others to follow suit. The practice will produce immediate effects in a short time but the drawback will emerge. Such companies can not endure long-run loss, so the capital chain would break and the trading is forced to stop. That’s why they will be driven out of the market sooner or later. In view of that, I do not worry about the price competition.

Under such a condition, we will take different measures. We will follow suit if there is profit. If the market is very bad, my customers will give us a higher price since we keep good cooperation relationship. We never worry about the fund chain breaking stuff.

As for your second question, I think the phenomenon of traders’ loss is abnormal since some factors at abroad and home put negative influence on the spot steel market.

Firstly, appreciation of the RMB influenced the import and export business of steel products, thus AD Investigations are frequent. In addition, European economic crisis puts a negative impact on the world’s economic, including Chinese.

Secondly, the steel market has close relationship with policies published by the government. Since Chinese government tightens on the country’s property market further, steel products especially construction steel shows downward trend both in the spot and futures markets. Prices of HRC and HR strip are bound to decline, with a narrower markdown than wire rod.

Last but not least, I should say that the demand from downstream customers plays an important role in the market. The HR strip market doesn’t face serious oversupply at present. HR strip mills are flexible and they will control the outturn if the oversupply is severe and there is a basic balance between total supply and total demand. However, dragged by the weak demand from downstream industries, the price of HR strip keeps decreasing.

Asian Metal: As we know that the success of an enterprise has close relationship with company business philosophy, so could you reveals that what makes Zhongfa so successful?

Zhang: Of course. Our company business philosophy: “cooperation and mutual benefits”. We keep strengthening solidarity and cooperation with upstream customers and downstream buyers, thus we can guarantee the funds chain and sales. We never covet petty profit but we cherish the good cooperation relationship with our partners. When the price keeps increasing, we can provide a lower quotation for our customers, which can reduce customers' risks. In the meantime, when the price keeps decreasing, our customers are willing to purchase from Zhongfa at a higher price than that in the market. That’s why our business is good and the fund chain never breaks.

Furthermore, we have maturing sales strategy. We will conclude a prognosis referring to the futures market, raw materials, stock, sales volume and transaction price and then adjust the price. Therefore, we choose risk aversion strategies and we can provide complete grades of materials. To provide the most convenient and OEM is our aim. Therefore, we can easily respond to various situations though the market is dim.

Asian Metal: Thank you very much, Mr Zhang. We also hope Zhongfa will become better and better and win greater prosperity.