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Home > MEPS Steel News - 18.07.2013


In recent days, both Shagang Group and Baosteel have announced projects to build steel trading platforms to provide services which are intended to improve the distribution mechanism. The mills have been under pressure to find a quicker way to get their steel to market. The existing process involves the large mills selling some of their material direct to major customers but a significant proportion is sold to first tier traders who sell it on to smaller traders and the process continues through more local dealers – thus increasing handling before the material arrives at the user. This is clearly inefficient and is also very costly.

This action will have been precipitated by the bankruptcy of some major traders in recent times as market prices declined – thus creating losses for the mills.

MEPS contends that, with so much downward pressure on traders’ margins in the last year, this is the ideal time to modify the outdated trading mechanism in China. A change is overdue, particularly as the size of the market increased so dramatically over the past twenty years. However, this will be just the first step in the process of change.

It will not work if the only buyers concluding deals on the platform are the same traders that are currently making purchases. The existing market mechanism would then continue. Involvement of the end users of steel is essential if the new process is to be a success. This requires a major rethink by the company executives of the engineering and construction companies which use steel.
They will need to invest in warehousing facilities, order scheduling, materials handling and all the other purchasing skills that accompany an efficient procurement department. If the process of re-education and investment is not carried out, the initiative will fail to provide the changes that are needed to streamline the supply chain.

If it works well, the scheme will put the users of steel in direct contact with the producers. This can create massive benefits for both sides in understanding the problems of the other party. Lower stocks through the supply chain should follow – leading to cost savings. Closer links should enable the mills to have a greater understanding of the customers’ difficulties and assist in solving the current problem of excess supply and investment in steelmaking.

Source: MEPS China Steel Review

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