Asian Metal: Hi, Manager Zheng, could you please give us an introduction to your company’s business?

Zheng: Glad to accept this interview with Asian Metal. Our company’s headquarters is located in Tianjin and we are involved in trading, logistics, processing and distribution. We are agents of HBIS, Tiantie Steel, Shougang Steel and Baotou Steel and mainly deal with CRC, HRC and coated products. Our company has been named as a consumer credit-worthy enterprise since 2003 and richly rewarded by being offered high-credit loans. In 2013, we reached a trading volume of 0.5 million tonnes by selling our steel products, of which CRC is the major one. As a consequence, we are in the list of the top 100 enterprises for selling thin steel sheet.

Asian Metal: What is your company’s annual trading volume on CRC and HGI coil? What proportion is occupied by the Foshan office?

Zheng: Let’s take last year as an example, our company’s trading volume reached 0.86 million tonnes. Our Tianjin headquarters occupied 85% and the Foshan office occupied around 15%.

Asian Metal: CRC and HGI coil prices have shown two sharp increases this year. One took place in Mar-Apr and the other in Oct-Nov. What are the main reasons for the two price rises?

Zheng: I think the two major factors that helped to push up prices were similar during the two periods.

First, the government carried out strict policies on restricting output and reducing excess capacity. The overall stocks in the market showed a downward trend compared with past years. Our company mainly deals with materials from North China, especially those from HBIS. Hebei province is one of the regions which has a large production capacity for steel products. As a consequence, it is very important for steel mills in Hebei province to reduce excess capacity. At the beginning of this year, the government embarked on a mission in Hebei province to reduce iron-making capacity by 17.26 million tonnes and steel-making capacity by 14.22 million tonnes, and let 50 coal mines retreat from the market, cutting production capacity by 13.09 million tonnes.

I have seen a report that, in the first ten months of this year, Hebei province reduced iron-making, steel-making and coal mine capacity by 15.79 million tonnes, 14.62 million tonnes and 14.00 million tonnes respectively. Influenced by the government’s policy on cutting excess capacity, average prices for coke increased from RMB520/t (USD75/t) at the beginning of this year to the current level of RMB1900/t (USD276/t). After that the production cost continued to rebound and steel mills kept lifting their ex-works prices for steel products.

Second, the depreciation of RMB is another reason for the price rise. Steel products have a financial character and they are more valuable when RMB is depreciating.

Asian Metal: Is it true that the stocks of CRC in Foshan market have been lower in the past two months? What is the reason for this?

Zheng: Yes, it is true. Actually, the entire stocks of CRC and HGI coil this year have been lower than in past years. Generally speaking, the price in Foshan is around RMB200/t (USD29/t) higher than those in North China and East China. At the beginning of this year, prices in Foshan were even lower than those in North China and East China. As a consequence, in Foshan it was not profitable to sell materials delivered from North China, so traders delivered fewer materials from North China to South China.

Besides, in September the government of China carried out policies on limiting vehicle transportation volumes, increasing the transportation cost. Before the policy was carried out, the transportation fee for CRC was around RMB160 per tonne, but it is around RMB180 per tonne at the moment. Taking the two factors into consideration, the entire stocks of CRC, HRC and HGI coil have shown a downward trend in the past two months.

Asian Metal: Currently, prices for coke are still standing firm, resulting in high production costs for flat steels. Do you think steel mills will lift CRC and HGI coil ex-works prices further?

Zheng: Yes. First, it is the high season for coal and coke and demand for them is strong. The supply in some regions is relatively tight. There is no doubt that steel mills’ production costs will continue to be high in the near future. As the price is gradually accepted by the market, steel mills will certainly increase ex-works prices further later on.

Second, the steel industry has been in trouble and struggling for 3-5 years, so many small steel mills have been eliminated in the past two years. Bigger companies have merged and reorganized, monopolizing market share, which has made them more confident in raising prices.

Asian Metal: In H1 of this year, it was not profitable to produce CRC and steel mills cut output one after another. However, it is more profitable to produce CRC at present and steel mills have shown more willingness to increase output. Do you think CRC output will go up sharply? Will this prevent the price from rebounding later?

Zheng: Influenced by the government’s policy on cutting excess capacity, it is unlikely CRC output will go up sharply. There isn't too great a possibility of prices dropping significantly but the mark-up may be reduced.

Asian Metal: The price gap between of CRC and HGI coil isn't at a reasonable level at the moment. What is the reason for this?

Zheng: Actually, prices for HGI coil are RMB300-500/t (USD43-72/t) higher than those for CRC. However, the former are only about RMB50/t (USD7/t) higher than the latter. This is because more and more private small HGI coil producers have been cutting prices as their production cost is relatively low, forcing bigger producers to follow them and decrease prices.

Asian Metal: Do you think prices for CRC and HGI coil will go up in December? What level do you think prices will reach by the end of the year?

Zheng: I think they will go on increasing slightly. Taking materials from Tangshan Steel as an example, at the end of December, prices for CRC and HGI coil are likely to touch RMB4,800/t (USD696/t) and RMB4,850/t (USD703/t) respectively, VAT included.

Asian Metal: How about demand for CRC and HGI coil in the short term?

Zheng: This year, the traditional high season for CRC and HGI coil termed Golden September and Silver October arrived a month late. For now, the demand from producers of automobiles and home appliances isn't especially weak but it may gradually shrink after New Year, when the low season for the production of automobiles and home appliances comes around.

Asian Metal: Thanks for your support of Asian Metal, we wish your company a successful future.

Zheng: Thank you.