Stainless seamless pipe producers struggle with weak Chinese demand
China’s sliding economic growth is forcing most Chinese steelmakers to cut back production as well as profit expectations, and the stainless seamless pipe producers are not spared.
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“We started feeling things were becoming very bad from late April this year, when producers reported to us about decreased orders, especially from domestic downstream users,” Mao Shengfa, the chief governor of Songyang region, China’s biggest stainless seamless pipe producing base in the southwestern part of Zhejiang province, told Metal Bulletin.
“Depending on the current market situation, I expect our production to grow this year, but the pace will definitely be slower,” he said.
Songyang is located near Wenzhou and Huzhou, where big private stainless steelmakers Tsingshan Group and Yongxing Special Steel are based.
There are now over 70 small stainless seamless pipe producers in Songyang, with an annual capacity exceeding 400,000 tonnes.
Tsingshan Group is the main supplier of stainless billet to producers in Songyang.
These small producers are expected to produce 220,000 tonnes of stainless seamless pipe in 2012, up 10% from 2011’s 200,000 tonnes. But the projected growth is lower than that of last year, which was about 15-20%, Mao said.
Songyang’s pipe production has been growing rapidly every year since 2004, when it started developing this sector by setting up an industrial park.
“One big problem our producers face is financing. Banks are very cautious with issuing loans to private companies. We are trying to facilitate negotiations between them and put down deposits to enable producers to secure loans from banks,” Mao said of the efforts the local government was putting in.
“We are also encouraging banks to keep their interest rates at a relatively lower level and we give certain tax rebates to companies,” he added.
But the stainless steel market and the fluctuation of London Metal Exchange nickel prices are beyond the local government’s control.
“We are trying our best to help our stainless pipe producers through the current difficult times, but the stainless market and nickel price are connected to the macroeconomy, which we can do nothing about except wait for positive news from central government after the 18th party representative conference in October,” Mao said.
China’s Communist Party will hold its 18th party congress to elect a new group of leaders, and market participants are hoping for more stimulus policies to be launched after that.
“The third quarter might be the most difficult time. Our focus is on how to survive, not on making profits. We are waiting for some hope in the fourth quarter,” a pipe producer in Songyang said.
Export demand is crucial for producers in Songyang. About 40% of the stainless seamless pipe output is exported to India, Russia, and Southeast Asian countries and so far, they have not felt any pinch on that yet.
“We feel the export demand is okay, but the profits we earned are only enough to pay for bank loan interest,” the producer said.