Chinese steel traders hit hard as downturn persists into fourth year
Published on Fri, 24 Jul 2015 106 times viewed
Global Times reported that China's steel trading industry has been in decline since late 2011. The situation has continued to deteriorate in 2015 as market demand has weakened and steel prices have fallen to new lows. Consequently, a large number of steel trading firms have closed down in recent years, but many traders have clung to the industry, trying to survive the storm.
Times used to be good for China's steel traders. The country's economy was booming. New skyscrapers and real estate developments were going up across the country, not to mention all of the infrastructure projects. And it all needed steel. Standing between the foundries and the construction contractors was a great place to be.
Ye Minghai, deputy general manager of Shanghai Shuangsheng Steel Trade Co, said "From 2004 to 2010, China's steel industry was particularly prosperous. Almost every steel trader I know could make a lot of money in those years."
But ever since the economy began to slow in 2011, China's steel traders have been hit hard as the real estate market went into a slump, dragging down steel prices. And it's only gotten worse this year.
Unable to deal with the nearly continuous drop in steel prices, many trading companies have gone under. Since 2012, the number of steel traders in China has fallen by almost half. It's even worse in Shanghai, one of the largest centers in China in terms of annual steel trading volume, where nearly 70 percent of steel traders have left the industry
In 2012, however, as the economy slowed and steel demand shrank, many domestic steel traders started cutting prices. That led to a vicious cycle in the steel market, causing prices to collapse. The price of hot rolled steel bars, a type of commonly used steel, fell from about 3,721 yuan per ton in December 2008 to around 1,900 yuan per ton in July 2015.
Usually, a steel trader serves as an intermediary between steel producers and customers, such as home builders. The traders pay steel producers for their products and then sell those products on to their customers sometime later. This works just fine as long as the traders have access to credit and their customers pay them in a timely manner. Traders need to borrow money from banks to pay the steel factories. When the industry was prosperous and the customers could repay in due time and the banks were eager to lend money. However, when the market went bad, customers owed money to traders which in turn made it hard for the, to repay the banks. Banks have since lost confidence in steel traders, Wu noted. They are no longer willing to lend to steel traders
Source : Global Times