Stainless steel prices will back to rational levels
----Interview with Mr.Chen Hejian, vice general manager of Foshan Huayuanheng Stainles Steel Co., Ltd.
Asian Metal: Mr.Chen, thanks very much for taking our interview. Firstly, please introduce your company briefly.
Mr.Chen: Founded in 2014, our company is trading as much as 1,800tpm and is equipped with supporting processing capability including polish. We are mainly trading 201 and 304 grade stainless CRC, and concurrently engaging in sanded plate, embossing plate and colorful decorative stainless steel plate.
Asian Metal: Chinese stainless steel prices soared recently. What’s the reason for the sharp price increase?
Mr. Chen: From a fundamental point of view, there exists dynamic foundation for the rise of stainless steel prices.
Firstly, the supply side was compressed. On the one hand, the national structural readjustment and de-capacity policies showed positive effects, and on the other hand, the environmental protection policy was executed strictly.
Secondly, stocks of the material were in low levels. Stocks in both steel plants and market were still in relative low levels.
Thirdly, downstream demand was stable. We can see it from two industrial indexes of PPI and PMI. PPI has kept positive growth for 10 consecutive months while PMI has been above the threshold for 11 successive months.
However, the main reasons for the soar of stainless steel prices were as follows: the excessive interpretation and speculation of the environmental protection policy and the spread of market sentiment have led to the irregular movement in the raw material futures market and the state-owned stock market, which brought the rapid rise of spot material in a large margin
Asian Metal: According to the market feedback, customers’ demand did not improve obviously, leading to inactive transactions. What is your opinion on this?
Mr. Chen: Exactly. This is mainly because stainless steel market is in the slack season. Moreover, the environmental protection policy also has some impact on downstream production, and quite a few downstream producers are holding a wait-and-see attitude as prices increased too rapidly. Therefore, downstream buyers do not replenish their stockpiles due to price increase.
Asian Metal: As steel mills raised prices constantly and the purchase cost increased, some traders have lowered their stockpiles in order to reduce risks. Is this happening in your company at the moment?
Mr. Chen: It is true. However, whether traders decrease stocks or not will depend on many other factors, such as the cost structure of stocks and demand from major customers. Some traders hold stocks of superior cost, and they have strong risk-bearing capacity with a bullish outlook on the market, so they have no momentum to lower stocks; some traders have stable major customers whose demand is strong, so they also have no willingness to reduce stocks.
Asian Metal: How about the demand of downstream industry?
Mr. Chen: It is in the slack season now and the environmental protection policy also has affected the downstream industry. However, economic index in H1 of 2017 showed better results and the market demand was relatively stable. In addition, the “Gold September and Silver October” season of steel market will come soon, so downstream demand is expected to pick up.
Asian Metal: The “Gold September and Silver October” season of steel market is arriving, and will prices for stainless steel go up further in your opinion?
Mr. Chen: I believe prices for stainless steel will increase further. Firstly, the “Gold September and Silver October” season of steel market will come soon, and the domestic demand is expected to increase in H2. Secondly, the supply will not increase much. Blast furnaces are producing at a quite high capacity at present due to supply-side reform and environmental protection policies. Thirdly, the market sees low stocks, which is hard to be changed in the near future, and the time for stock replenishment will come. Lastly, the future supply is expected to reduce due to stricter production limitation policy, and the overall market will show optimistic sentiment. All in all, stainless steel prices will go up further.
Asian Metal: What are your new development goals?
Mr. Chen: Our priority work next is that we will study the industrial structure transformation in the supply-side structural reform period, seize new opportunity of changes in the stainless steel industry especially steel companies, and upgrade our existing stainless steel supply chain according to characteristics of downstream customer
Asian Metal: Thanks again for taking our interview. Wish your company a better future!
