China: Shagang to Halve Contracted Rebar Sales Volume in Mar
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Shagang Group, China's largest privately-owned steel mill, has decided to cut the volume of rebars it requires its sales agents to receive each month to 50% of the contracted volumes in March, market sources confirmed on Wednesday. They interpreted the move as Shagang taking "special care" of its long-term contracted customers.
The spread of Novel Coronavirus Disease (COVID-19) and the impact this is having on domestic steel demand is leading most Chinese steel traders to suffer from stagnant sales. "If Shagang continued to insist that its dealers take as much as they've contracted, the slump in sales will see the dealers tumble into debt, which would ultimately hurt Shagang's business too in the long-run," commented a Shanghai-based market insider.
As of February 25, nationwide sales of long steel products comprising rebar, wire rod and bar-in-coil averaged just 57,570 tonnes that day among the 237 traders Mysteel sampled, far less than the 147,714 t/d they managed on the same day last year, according to Mysteel's daily transaction report.
Thus, Shagang is giving the dealers a break by ensuring that they don't receive too many products at one time, otherwise they could be panicking about their mounting stocks and may have to undersell their products in very low prices to recoup their outlays to the mill, sources explained.
"Everyone of us is suffering great sales and cash pressure, (since demand) has been frozen for a whole month," a Shagang sales agent based in Shanghai agreed, noting that under the prevailing burden, some agents had started to sell off Shagang products at a discount, a development the Jiangsu-based steelmaker in East China had hoped to avoid.
Apart from easing its dealers' sales pressure, Shagang's decision to slash delivered volumes to its agents also took into consideration other factors including its production and inventories, he reckoned.
"It (Shagang) has conducted maintenance, (so) the mill itself probably has no urgent need to keep its own inventory levels in check. To halve its (steel) deliveries, it must have considered the remaining capacity of its own warehouses," he told Mysteel Global on Wednesday. Shagang's inventories at its own yards are now over 20% beyond the level same period last year, according to company vice president Chen Shaohui.
Since mid-February, Shagang has idled two rebar rolling lines, as Mysteel Global reported, bringing the total of facilities temporarily stopped to three electric arc furnaces and three bar rolling lines, Chen stated in a recent industrial meeting on February 22.
Chen estimated that the company's steel output this month will be 9% below its February target and its Q1 total will be 5% down on first quarter last year.
Accompanying the move to cut contracted rebar volume, Shagang has aggressively cut its list prices for all long steel items by Yuan 200-230/tonne ($28.5-32.9/t) for sales in early March to ease the burden on its sales agents. The mill is attempting to narrow the spread between its sales prices and prevailing spot market levels, as reported.
However, some other sources thought the adjustments were just a kind of "compromise" on Shagang's part, as the company had made no adjustment to its prices since mid-January even though domestic spot steel prices have been rapidly losing ground.
As of February 25, the daily price of HRB 400 20mm dia rebar in Shanghai had hovered at Yuan 3,500/t for a third straight day, or down by Yuan 250/t from January 23, the last working day before Chinese New Year holidays, which was not much below Shagang's targeted price for next month's first ten days, as reported.
This article has been published under an article exchange agreement between Mysteel Global and SteelMint.