Stainless steel prices to rise slightly
----Interview with Michael Xu
General Manager
Jiangsu Romin Stainless Steel Co.
- Founded in 1992, Jiangsu Romin Stainless Steel Co., Ltd. is a national high-tech enterprise. It is located in Xinghua, Jiangsu province and mainly produces spring wire, cold-drawn wire, annealing wire, welding wire, stainless bar, grinding stainless bar and so on, owning an annual production capacity of 150,000t. It has got ISO9001 and SGS quality system certification.
- Asian Metal: Hi, Mr Xu. Thanks for taking part in our interview. Please make an introduction of your company firstly.
- Mr Xu: Our company is founded in 1992 and already became one of leading stainless enterprises in domestic market which own full set of deep steelmaking processing equipment. We mainly produce spring wire, cold-drawn wire, annealing wire, welding wire, stainless bar, grinding stainless bar and so on. We have advanced equipment includes 15T AOD refining furnace, multi-frequency induction melting furnace, frequency control drawing units, frequency control-back of hydrogen and welding wire production line, bar peeling, straightening and polishing production line and so on. We also have Shimadzu direct reading spectrometer imported from Japan, as well as a test center in which there are spectrometer, detector and other laboratory equipment.
- Asian Metal: What industries are your products used in? How do you allocate your sales in domestic and export markets respectively? Which countries are your products exported to?
- Mr Xu: Our products are mainly used in following industries. Firstly, makeup industry will use our products as press pump spring. Secondly, construction industry will use our products as strapping wire for steel bar in buildings and lightening protection system for super high-rise buildings. Thirdly, deep sea industry will use our products as fishing nets, shrimp cages, stainless anchor chains for ships. Fourthly, machinery industry will use our products as painting press roller spraying and tank spraying. Fifthly, cable industry will use our products as fiber optic cable armoring. Our annual production capacity reached around 150,000t and 35% of our products are sold in domestic market. 65% of our products are exported to Germany, the U.S., South Korea, Japan, Russia, the UAE and so on.
- Asian Metal: Last year China cancelled the 13% rebate for exporting stainless steel. How will you allocate your sales in domestic and export markets in the future?
- Mr Xu: The raw materials of stainless steel industry are mainly imported, like nickel ore, ferronickel, chrome ore and so on, which are largely dependent on overseas suppliers. With the reduction of domestic output and OEM export orders, domestic stainless producers will reduce the purchase scale and reduce the cost of raw materials. The cancellation of export tax rebates for stainless steel products complies with the background of China's policy on carbon dioxide emissions and will effectively control the growth of stainless steel production, which will guide the reduction of domestic stainless steel crude steel production. The cancellation of export tax rebates on stainless steel will cause short-term decline of domestic market prices and increase stocks in domestic market on reducing export. As a consequence, stainless steel producers would face more sales pressure. Take our company as an example, our stainless steel business started from domestic trade. However, we found that it was easy to withdraw cash quickly from exporting business, especially cooperating with customers who concern more about products' quality. In addition, it remained more profitable from exporting business. As a consequence, our export shared 65% of the output now, up from 30% eight years ago. From May 1, 2021, China cancelled the 13% rebate for most stainless steel export, which was a huge blow to the stainless steel industry, especially to those like us, export accounted for a relatively large share. This year, we are also considering gradually shifting to domestic trade. However, due to the influence of conventional thinking and fierce competition in domestic market, where customers are very sensitive to prices, till now our domestic business development failed to reach our expectation. Later this year, we still want to expand domestic business and have a place in the high-end market, hoping that the proportion of domestic sales and export account for a half respectively.
- Asian Metal: In the recent two years, the stainless steel industry in Jiangsu and Zhejiang province experienced reshuffle. How do you think the industry change during this time and how did your company survive?
- Mr Xu: The production capacity of medium frequency furnaces in Dainan, Jiangsu and its surrounding areas involving stainless steel rods and wires is 1.0-1.2 million tons, accounting for about 29% of the total domestic production capacity of stainless steel rods and wires. Since May 2018, in order to rectify the stainless steel market, intermediate frequency furnace was banned in Dainan, Jiangsu province and after that the stainless steel producers in China made some obvious improvement. However, there are still some intermediate frequency furnaces used in other regions except for Jiangsu and Zhejiang, which leads to a situation that producers in East China who produce ordinary materials could not stay in a dominant place in domestic competition due to higher cost. However, after the government's guidance, the intermediate frequency furnace is going to become the past, the shoddy manufacturing process with high energy consumption but low yield must be eliminated. It was both a challenge and a chance for us when the intermediate frequency furnace was banned. We caught this chance and invested around 15 million yuan in two years to upgrade all equipment. We used to produce ordinary products like stainless bar with large diameters, whose production was large with low technology. After the upgrading, we began to produce products with elaborate processing. Until last year, we kept adding high-end production lines to improve ourselves. Last year, we launched seven production lines for spring wire to produce high-strength spring wire, which was widely used in makeup industry. In addition, we eliminated all old equipment and upgraded longer heating pipe to produce stainless steel wire back hydrogen steadily. Through technological update, our company gradually got rid of relying too much on the profit from steelmaking in the past and changed to gain more profit from deep processing.
- Asian Metal: In the H1 of last year, stainless steel market ran slowly. Prices fluctuated sharply in the H2 and reached a record-high level since 2015. What is the major reason for this? How did your company run amid this situation?
- Mr Xu: Taking 304 stainless bar as an example, in the H1 of last year prices hovered at RMB14,000-15,000/t (USD2,199-2,356/t), while they fluctuated highly between RMB16,000/t (USD2,513/t) to RMB20,000/t (USD3,141/t) in the H2. At the beginning of last year, the price of unpickled hot rolled stainless wire rod was only about RMB13,500/t (USD2,120/t) but it surged in June and reached close to RMB20,000/t (USD3,141/t) in October. I think the major factor for the price increase was the COVID-19. After one-year outbreak of COVID-19, most global stainless steel producers could not make full use of the production capacity, leading to a large number of orders transferred to China. However, Chinese domestic production capacity could not meet the huge demand, so the globally tight supply appeared. At that time, upstream industries saw this situation firstly and keenly sensed the opportunity. First of all, nickle prices were pulled up. At last the middle and downstream industries could also share some profits. At the beginning of last year, the price of electrolytic nickel was about RMB120,000/t (USD18,834/t), but after June it went up from RMB130,000/t (USD20,403/t) to RMB150,000/t (USD23,542/t). We noticed the surge of orders in April last year, so we urgently launched a hydrogen defurnace, doubling the production capacity. And later we launched the spring wire production line, which increased the annual output by about 12,000 tons. Under the situation of a surge in order, our delivery was not delayed at all. In 2021, our billing sales revenues reached nearly 300 million yuan, doubling that of 2020. However, due to our advance layout, there was no delayed delivery.
- Asian Metal: In March 2022, amid the historical rise of nickel prices in LME, Chinese domestic stainless market got a huge stir. The price of 304 stainless bar surged to around RMB22,000/t (USD3,453/t). How did the downstream industries response at that time?
- Mr Xu: After the boom in H2 of last year, China launched large production capacity for stainless steel, which increased faster than the demand did. The jump of nickel price in LME was not related to market demand but hedging between the bulls and bears. Regardless of the nickel price surge, the demand for stainless steel remained stagnant.
- Asian Metal: How do you think the stainless market will perform in Q2 of this year?
- Mr Xu: I think the market in Q2 would improve a little bit from that in Q1 and stainless steel prices would rise by around RMB1,000/t (USD157/t). However, producers would still face thin profit. Firstly, the global market would be open gradually when the COVID-19 situation improves and market participants would not worry too much about the epidemic. Secondly, China will continue on pollution curbs and banning intermediate frequency furnace. Producers with high pollution and high energy consumption would be eliminated, so that the stainless steel market would develop healthily. Thirdly, the government strengthened tax collection and strictly investigated tax evading enterprises. Illegal tax payment of small factories would see increasing management costs and have to exit from the market. However, stainless steel producers' profit would be lower and lower. Last year's production capacity input as well as the excessive issuance of dollar, would bring more fierce competition to the stainless steel industry in China.
