Dai Zhihao: China's steel consumption peak

At 14:00 on April 7, 2015, Dai Zhihao, general manager of Baoshan Iron and Steel Co., Ltd., was interviewed by the reporter.

Reporter: In the past two years, China's economic growth rate has been declining. This year it is expected to be 7%. With the declining macroeconomic growth, many people predict that the peak of Chinese steel consumption will come earlier in the past two years. How do you view the current steel demand? How will Baosteel Co., Ltd. speed up adjustments to adapt to the "new normal" of the economy?

[Dai Zhihao] First of all, I do not agree with the view that China's economy is down or hard landing. I think that as the second largest economy in the world, we have entered the new normal, and such growth of 6% and 7% is actually a very high figure. I think that even a small economy with 6%-7% growth is a high-speed growth rate.

But when it comes to steel, the situation may be slightly different. The Chinese steel industry has entered winter in 2014 and this winter may last for 3-5 years. The entire Chinese steel industry is in a state of oversupply. I think the emergence of this problem is not a drop in demand, demand is still, basically stable. The main problem is that the supply side has grown too fast. In the past few years, for a variety of reasons, the steel production capacity has been invested too much, causing supply to exceed demand. This is my personal opinion on this issue.

In the face of such a winter in the steel industry, where supply exceeds supply, Baosteel shares the same challenges as its counterparts. However, in this process, from the aspect of Baosteel Co., Ltd., on the one hand, we believe that China's economy is undergoing a transformation, and its transformation has transformed from a high-speed growth to a medium-speed growth. On the other hand, there is a shift from investment-pull type to consumer-pull type. Baosteel Co., Ltd. is a manufacturer of high-end flat sheets, which is not the same as some domestic manufacturers of long products. Therefore, we are more concerned with consumption growth.

With the transformation of China's economy, in the past many low-end manufacturers of long products will spur the proportion of investment, and will face more pressure for transformation in the future. As for such high-end panel-consuming manufacturers, Baosteel’s economy will be driven by consumption. More and more, the chance for us will be greater. Because Baosteel has a large share in the automotive panel market and has a large share in the home appliance market, these industries are closely related to consumption.

So where is China's steel consumption peak? different people have different ideas. Baosteel Inc. includes my personal opinion that the peak value of steel consumption in China is probably at present. However, with the same amount of consumption, the structure inside will change. In the future, there will be fewer and fewer long products, more and more plates, fewer and fewer high-end products, and more and more high-end products. We are also making efforts to change in this direction. In fact, we have a great advantage in this market. Because of this, China's steel industry has faced great challenges in the past year or two, but Baosteel still maintains a stable profit.

For example, in 2014, we contributed about 27% of the profits of the entire industry with about 3% of steel production in the entire industry. This also fully shows that our direction and the direction of China's economic transformation are the same. Another direction in which we are transforming ourselves is the "one body and two wings" strategy. The so-called "oneness" is the main business of steel, the so-called "two wings", and a piece of information-based strategy related to Baosight Software, which is mainly based on cloud computing and big data business. This is the direction of future development and transformation of Baosteel Co., Ltd. Credit Controls' controlling shareholder.

Another piece of the e-commerce platform is cloud-based, and we internally call it a transition from manufacturing to service. Through this transformation, we believe that the future B2B model represented by China’s steel third-party trading platform will be within 3-5 years. It will have an explosive growth like the previous B2C, or a turning point. We also believe that In this turning point, we will have greater opportunities.