Chinese Steel Traders Suffer Due to Current Trading Model

At 11th International Steel Market and Trade Conference held in the southern Chinese city of Guangzhou, Zhang Jinghua, the vice president of Beijing-based state-owned Sinosteel Corporation, stated that China’s steel trading sector is currently characterized by fierce competition with over 200,000 steel trading enterprises competing together in the sector. He went on to state that in Japan the steel trading model is different from that in China. 80-90 percent of steel produced by Japanese steelmakers is sold via Japanese steel trading companies, adding that the Japanese traders also contribute to the development of products and markets, in addition to selling products, instead of just purchasing at lower prices and selling at higher prices as in China. Japanese steel trading companies earn commission charges instead of just the profit they can make on sales, and so they do not have to bear high price risks in the steel market.
 
In China, on the other hand, Mr. Zhang said, steelmakers and steel traders are more like competitors as steel traders bear by themselves the responsibility for distribution and they have to pay in advance in order to book materials. Rapid price changes give rise to high risks, and sometimes the steel traders’ booking prices may be higher than their selling prices in the spot market. In 2012, many steel traders exaggerated their sales figures, which eventually caused banks to set higher qualification thresholds for steel trading companies looking for loans. This had a serious impact on credit availability in the steel trading sector, causing a number of steel traders to go bankrupt or incur huge losses.
 
Several steel traders at the conference told SteelOrbis that they have concerns about the situation in the steel trading sector and that they expect a better model to be developed instead of having to survive just on earnings on the difference between their purchase prices and sales prices. They also said the higher prices of booking steel supplies at present mean that they are currently going through a difficult time.