China’s largest steel trader, China Minmetals Corp opened its e-commerce platform to other dealers to help the sector handle overcapacity and a credit crunch

Steel traders in China look to the internet to solve woes

Xinhua

2014-05-23

China’s largest steel trader, China Minmetals Corp (CMC), on Tuesday opened its e-commerce platform to other dealers to help the sector handle overcapacity and a credit crunch.

The platform, www.xinyilian.com, will link commodity buyers with sellers and gradually become an online steel supermarket, said Yu Engang, deputy general manager of Minmetals Development, a subsidiary of the CMC group.

The platform also provides online financing for steel dealers.

“During hard times, the steel sector must build an open and standard e-commerce platform,” Yu said.

China’s steel industry is struggling through the mire of overcapacity and losses amid the economic slowdown. Steel companies posted combined losses of 2.33 billion yuan (US$380 million) in the first quarter, compared with profits of 8 billion yuan (US$1.3 million) a year ago, according to data by the China Iron and Steel Association (CISA). Crude steel output continued to expand in the first quarter by 2.4% to 203 million tonnes.

The steel industry, which relies heavily on bank loans for financing, was among the hardest hit by the credit crunch. The average debt-to-asset ratio for the steel industry now stands at 70%, according to the China Chamber of Commerce for Metallurgical Enterprises (CCCME).

Steel companies or dealers have to endure a 10% reduction in credit and higher interest rates, said Zhao Xizi, honorary president of CCCME. The whole steel industry will have to hold on for another three years before going through the “winter” period, Zhao said.

Since 2012, a growing number of commodity transactions have been executed through e-commerce in China, where more than 100 third-party platforms are focused on the steel industry. As the largest raw material supplier in the country, the CMC group hopes to repeat the success of Chinese internet giant Alibaba in operating third-party e-commerce platforms such as Taobao and Tmall, improving transaction efficiency and access to information.

Only 10% of the country’s steel transactions go through e-commerce platforms. However, the e-commerce rush among steelmakers and dealers has worried some.

“It’s unnecessary for everyone to launch their own e-commerce platform, trading company or logistics park,” warned Liu Leiyun, president of the China National Association of Metal Material Trade. “Otherwise, it will become another overcapacity problem.”

Overcapacity has long been a problem for China’s steelmakers, which have not only been blamed for polluting the air, rivers and soil, but for impeding economic restructuring.

Figures from the China International Steel Congress showed the steel industry now has an excess capacity between 180-240 million tonnes.

Dong Baoqing, an official from the Ministry of Industry and Information Technology, sees e-commerce as a good way for the steel industry to win back trust from banks, burned by steel companies embezzling credit for speculative purposes.

“A reliable platform could reduce risks to controllable levels and facilitate the healthy development of the sector,” Dong said.

 

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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