According to Mr Ren Qingping VP of Shanghai Steel Trading Chamber of Commerce and General Manager of Shanghai Wubo Steel Structure Material Co Ltd that steel traders were feeling much harder to run their business and even faced losses when profits were increasingly squeezed.
In recent years, several distinct traits presented themselves in the domestic steel market.
1. The original price ups and downs turned out to be less significant and even disappeared. Steel prices surged or slumped by CNY 500 per tonne and sometimes by CNY 1000 per tonne in the past with highly frequent volatilities and large ranged fluctuations. However, the volatility range only registered at around CNY 200 per tonne from H2 of 2010 to 2011.
2. Apart from that, averaged steel prices fluctuated within a smaller range. The averaged steel prices and the volatility range originally posted at CNY 4000 per tonne and CNY 500 per tonne to CNY 800 per tonne respectively but now at CNY 5000 per tonne and CNY 200 per tonne separately. By contrast, the steel prices climbed up with the volatility range becoming smaller, implying the lucrative room for steel traders was elbowed away step by step.
3. The steel traders gained the price spreads by grasping opportunities among volatilities in the past, but it doesn’t work now accompanied by price inversion which spikes more risks. Accordingly, the enterprises that only ran steel trading business hardly earned profits.
4. Credit crunch gave steel traders a hard time in operating their business, especially when the situation aggregated during recent 2 to 3 months. The financing costs turned out to be increasingly higher for steel mills, downstream users and steel traders.
Manufacturing, ship building business also showed gloominess impacted by decreasing demand for steel products, thin profits and fierce price competitiveness. Meanwhile, steel traders are demanded to fill up money for a long period ranging from 10 days to 3 months which made them hard to earn profits and even suffered a loss.
Mr Ren said some construction projects were impacted, owning to the credit crunch faced by local governments, so whether the demand for steel products could be released in the future was still accompanied with great uncertainties which would eventually determine the future market trend and steel traders business were to put great tense.
The steel traders now have no choice but to strictly control the inventory while perfecting it and avoiding increasing or stockpiling blindly. The current HR H-beam steel prices, for instance are still experiencing CNY 100 per tonne to CNY 150 per tonne inversion. Therefore, shortening the turnaround period may avert risks but to earn profits still seems too difficult.
(Sourced from MySteel.net)
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