E-commerce gives leg-up to ailing steel industry

A flurry of online trading platforms have been launched as Chinese steel companies hope that branching into the Internet sphere will boost sales and help them weather the hard days.

China Minmetals Corp. (CMC), the country's largest steel trader, on Tuesday opened its e-commerce platform, www.xinyilian.com. It is the latest foray into e-commerce following the establishment of more than 100 such platforms by steelmakers and traders across the country since last year.

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

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

Despite its much-touted advantages -- transparency, efficiency and lower cost, analysts have said that bringing steel trading online is far from being a solution to China's ailing steel industry.

A RAY OF HOPE

The steel industry is bogged down in the mire of overcapacity, excess supply and sagging prices amid the economic slowdown.

Steel companies posted combined losses of 2.33 billion yuan (380 million U.S. dollars) in the first quarter, compared with profits of 8 billion yuan a year ago, according to China Iron and Steel Association data. More than 45 percent of steel companies reported losses as economic growth dipped to 7.4 percent in the first quarter, the lowest level since the third quarter of 2012.

As such difficult times are set to continue since the leadership resolves to cut reliance on heavy industry for quality growth, steel companies have turned to online trading platforms with the aim to streamline distribution.

Traditionally, standing in the way between steelmakers and end users are multiple hierarchies of distributors, who incurred a cost of around 50 yuan per ton of steel, according to Du Kelin, a manager in charge of the online trading platform of Wuhan Iron and Steel (Group) Corp.

"Transactions made through online trading platforms that bypass distributors can avoid that cost," Du said, noting that even saving 10 yuan per ton means an edge over competitors at the moment.

These platforms not only bring the cost down, but they provided customers with better access to information, allowing them to choose freely in steel companies' online inventories.

However, online platforms are nothing new for the steel industry as many companies experimented with going online a decade ago. But these platforms did not come into their own then as demand easily exceeded supply and steel companies felt no need to seriously explore e-commerce.

"With the industry in a slump and supply outstripping demand, steel traders and customers can now both benefit from e-commerce, providing a better opportunity for these online platforms to expand," said Liu Changqing, CEO of Langesteel.com, an active online third-party trading platform. The company expects to sell 2 million tons of steel this year, compared to 700,000 tons in 2013.

Another company, Zhaogang.com, one of China's biggest online platforms, sold around 60,000 tons of steel in a six-day "shopping carnival" earlier this month. The company targets 3 million tons this year.

Only 10 percent of steel transactions go through e-commerce platforms, but analysts expect the figure to grow as high as 30 percent in the years to come.

NOT A PANACEA

While e-commerce trading platforms are catching on and offers a direction for steel companies, analysts have said that they are not a cure-all and advised caution against an unbridled e-commerce rush.

"An e-commerce platform may be an effective way to sell standard and uniformed steel products but they cannot meet the needs of users who require custom-made products," said Cheng Ming, professor of new steel technology research institute of Wuhan University of Science and Technology.

"The biggest challenge facing the steel sector is still overcapacity. Even though some steel makers may win some time with the help of e-commerce platforms, the possibility of being written off the map amid industry restructuring is still there," he added.

"It's unnecessary for everyone to launch their own e-commerce platform," warned Liu Leiyun, president of China National Association of Metal Material Trade. "Otherwise, it will become another overcapacity problem."

Analysts have called for innovation and upgrading, saying these are key to the survival of steel companies in the long run.