Research background of steel trader
As the largest crude steel producer in the world, the demand and dependence of steel products from all walks of life can not be ignored. Since 2002, steel traders, as the main link of domestic steel circulation market, have been playing an important role. But in recent years, with the rapid increase in the number of steel traders, from more than 80,000 in 2019 to the present, the 2021 has expanded to more than 100,000, with several 100,000 traders carrying 60%-70% of China’s total steel volume in circulation, competition among traders is also intensifying. Under national policies such as “Double control of energy consumption”, “Carbon peak”and “Carbon neutrality”, steel production will not continue to increase in the short term, so each trader how to keep their own market share and enterprise competitiveness in the limited trade volume and fierce competition has become a topic worthy of careful consideration at present. Steel prices have fluctuated considerably so far in 2021, hitting a record high in May and nearly doubling from their 2020 low, creating a super bull market. But with the launch of policies such as the energy double-control and real estate tax pilot in the second half of the year, market transactions are weak, and raw material and steel prices are falling all the way, many steel traders in the first half of the commodity prices rose in the “Honeymoon period”immediately after the loss phenomenon. Therefore, Mysteel has investigated and learned about the operational advantages and disadvantages of steel traders and their coping strategies in the face of large market fluctuations, including aspects such as the current operating situation, the core competitiveness of enterprises, and risk management and control, the aim is to make steel traders in the future management, business planning and risk management as a reference.
The result of investigation and research of steel trader
More than 2,500 valid questionnaires were collected during the week long online survey, which was conducted between November 26 and 2021 at the 2021. Most of the steel traders who completed the questionnaire were located in east and north China, while the rest were located in China-South Africa, northwest, northeast and southwest China The majority of the functions of the positions of the interviewees are middle and high-level managers of their respective enterprises; the major types of operation in the surveyed enterprises are construction steel, accounting for 33.9% , and hot and cold rolling accounts for about 21% , other varieties such as steel pipe, medium plate, section steel, coated steel coil, strip steel and special steel are different varieties of traders involved in business. It is worth noting that, according to Mysteel research, construction steel accounts for more than 50% of all steel traders’transactions in the country.
The annual trading volume of traders is mainly 0-300,000 tons
According to Mysteel research, steel traders account for more than 50% of the annual trading volume of 0-200,000 tons, a category that can be collectively called small and medium-sized traders. Large traders account for nearly 20% of annual trading volume of 500,000-1,000,000 tons and more than 1,000,000 tons, most of which are based in eastern China and mainly deal in construction steel. It is not difficult to see from the trading volume of steel circulation market that the east China market as a relatively hot trading market in the region, and the construction of steel corresponding to the downstream real estate and infrastructure industries usually need more.
2. The trade agreement pricing model is based on reference market prices
According to Mysteel’s findings, the main pricing model of traders in the market is still based on reference market prices. There are also a small number of traders who strictly enforce factory pricing. These traders lock prices with steel mills by contract, by market price fluctuations less, of course, this part of the traders and Steel Mills may also make up, in the contract price and real-time price has a large deviation when there is a certain subsidy.
3. Steel traders are more demanding on their own capital
Steel traders have always been a higher demand for their own capital trading mode. According to Mysteel’s research, more than half of traders spend more than 50% of their own money on steel, and a third more than 80% . Usually, steel traders in addition to use a strong amount of capital to and the upstream steel orders, but also the existence of the downstream customers advance funds. Need to advance the length of the customer repayment period varies, generally speaking their own funds are more sufficient traders allow customers to repay the period is also relatively long.
4. Banks’attitude towards traders’lending is gradually warming up
With regard to the bank’s lending attitude towards steel traders, the option to meet the loan demand of more than 70% of all options for the most options, reached about 29% . About 29% of the country’s 30%-70% loan demand is met. It is not hard to see that in recent years the banks’attitude towards traders’lending has eased. In 2013-2015, after the outbreak of a series of steel traders industry credit crisis and joint insurance loss of credit and other financial issues, banks to traders lending attitude to the lowest point. However, in the past two years, thanks to the more mature development of commodity trade and the strong state support for the development of small and medium-sized entities, banks’lending attitude to traders slowly recovered from the lowest point to a stable stage.
5. Spot trading, wholesale and supply chain supporting services have become the mainstream of trade business
From the point of view of the current business scope of traders, spot trading, wholesale is still a major mainstream of domestic steel trade business, about 34% of traders will do this type of business. It is worth mentioning that close to 30 per cent of traders provide supply chain support services, which is also a form of business that has become increasingly engaged in recent years and which, through a more detailed understanding of the customer, meets the customer’s individualized needs, to provide customers with design, procurement, inventory and a series of supporting services in the traders are also more mature. In addition, shear processing services as value-added services, in the current and future steel trade also plays a pivotal role. In addition, the tray financing service as a steel trade in the more unique financing means, generally speaking, the amount of capital traders also higher requirements.
6. Steel market information acquisition methods complement each other
All four answers to the question about the main sources of market information accounted for more than 20 percent of the total, among them, traders obtain market instant information mainly through consulting platform and information exchange among traders. Second, feedback from upstream steel mills and front-line personnel and customers is also common. In general, access to market information through a variety of complementary channels, interwoven into a common information network, allowing traders to access the latest information in the first place.
Kill. Traders’profits this year are down significantly from the previous two years
Judging from the operating conditions of the steel traders in the past three years, the operating conditions of the traders in 2019 and 2020 can be said to be unsatisfactory, with more than 75% of the traders making profits for two consecutive years ending up, only 6-7 per cent of traders lost money. But until the end of the research period (Dec. 2) , the number of profitable traders in the 2021 fell by more than 10% from the previous two years. At the same time, the number of traders who reported flat and losses rose, with 13 percent of traders losing money before the final round of orders was settled with mills before the end of the year. On the whole, given the sharp rise and fall in steel prices this year and the promulgation of various new policies, some traders did not take risk control measures well in advance, so much so that this year steel prices fell sharply in the process of rapid losses.
8. Traders control the diversification of risk means to control the inventory structure and stock-based
In the day-to-day management of steel traders, there are different risks, but also different ways of risk control. According to Mysteel’s research results, about 42% of traders choose to control the structure and quantity of inventory to control the risk, this way is mainly through the observation of steel price changes in real-time and downstream customer demand factors to control their orders and stock to avoid certain risks. In addition, about 27% of traders choose to avoid the risk of price fluctuation by binding up and down customers, and traders as middlemen sign contracts strictly, clear their business scope and commission ratio and other means to transfer the risk to the upstream steel mill and downstream customers. In addition, there are about 16% of the trade will be insured with steel mills, loss and steel mills to make up. In general, for Steel Mills, traders hold a relatively stable portion of customer resources, and the final output of steel mills as producers to downstream customers requires traders to play a connecting role in the middle, therefore, some steel mills will timely subsidies traders, so as not to traders have a larger loss after the capital setback but lost the stability of customer resources. Finally, about 13% of the traders will hedge futures through this financial instrument to avoid a certain price risk, to achieve the expected profit target. Now, in combination with traditional spot traders, we will increase more options for the production and trade of enterprises, which can not only avoid the operational risks brought about by drastic price fluctuations, but also reduce the capital cost of enterprises and increase the turnover rate of inventory products, to help enterprises better achieve business objectives.
Post time: Dec-21-2021