Chinese steel traders face greater operational challenges during the downturn of the steel market, and large fluctuations in the market may trigger business crises.
Kallanish has learned from public information on the National Enterprise Bankruptcy Information Disclosure Platform that more than 30 steel traders have entered bankruptcy proceedings since 1 June. Several provincial steel associations have issued warnings to their member companies to avoid cooperation with partners who are at risk of bankruptcy.
A Shanghai-based trader confirms to Kallanish that “the operating pressure of steel traders this year is indeed greater than in the past few years. In particular, under the influence of the real estate downturn, the sales of traders who mainly sell building materials have been affected and the competition in sales has become more intense.” However, he denies rumours of mass closures of steel trading companies.
The sharp fluctuations in the steel industry have caused some traders with low awareness of risk control to suffer unaffodable losses. For example, some traders maintained strong confidence in the market and took long stock positions when prices rose, but a sudden market turnaround forced them to sell at lower prices, leading to unexpected losses. In addition, some traders sold in advance without actually holding the products, but the sudden surge in prices made them unable to continue trading at the settled price, so they chose to default and to not deliver products. That leads to increased chaos in the steel trade market.
“As a service provider in the steel industry, traders need to provide more additional services to stand out from the fierce competition,” comments a person from a steel mill. “More reliable sources of steel supply, competitive prices and excellent financing capabilities are all important factors that can determine a trader’s business performance,” he adds.