Rongcheng Steel Zhang Xiangqing: Small steel mills need to survive
A year ago, Zhang Xiangqing, an orphan of the Tangshan earthquake who gained fame for donating 100 million yuan after the May 12 earthquake, is now less inclined to talk about that act. Zhang said, "I now have more important things to focus on."
The head of a privately owned steel company is currently facing a severe market challenge. On one side, there's the large-scale reorganization of major state-owned steel companies. On the other hand, the financial crisis has made the steel industry increasingly difficult to manage.
In Tianjin, where Zhang Xiangqing's Tianjin Rongcheng United Steel Group is based, the city is preparing for the reorganization of four major state-owned steel enterprises. Nearby, Hebei Iron and Steel Group, China's largest steel producer, has been established, and private steel companies in the Tangshan area have even joined forces.
On April 13, the private entrepreneur, who had just turned 40, told a CBN reporter in an exclusive interview that if small steel mills don’t change, they may face a survival crisis in the future.
CBN: Since the donation last year, what has happened to the company’s development?
Zhang Xiangqing: The company's efficiency was very good in the first half of last year, but the market didn't perform well in the second half. The price of raw materials is high, but demand couldn't keep up, leading to a sharp drop in steel prices and a huge impact on profits. As part of the market, Rongcheng Steel is no exception.
Despite this, the company still achieved sales revenue of 30 billion yuan in 2008, with profits and taxes totaling 1.15 billion yuan. In 2007, Rongcheng Iron and Steel's sales revenue was 24.5 billion yuan.
CBN: Recently, steel prices have fallen again, and voices calling for a sharp drop in ore prices are growing louder. What do you think about the current market and these voices?
Zhang Xiangqing: It's currently the most confusing time for the entire steel industry. On one hand, downstream demand has shrunk, and there hasn't been a clear recovery. On the other hand, this year's international iron ore prices have dropped too low, falling below $50 per ton. With lower costs from foreign mines, their competitiveness is very strong, and over 50% of domestic iron mines will not be profitable. If these mines shut down, it could cause changes in the supply and demand dynamics and potentially lead to shifts in international ore prices.
CBN: According to our understanding, relevant departments may reduce the number of importers when re-evaluating the qualifications of imported ore mining companies. What do you think about the fact that some big steel mills and traders are gradually mastering the quality of imported ore?
Zhang Xiangqing: Steel mills and traders can charge small steel plant agents a fee, but those with long-term coordination qualifications should use part of their profits to eliminate outdated production capacity. There are still many backward production facilities in China, but eliminating them is very difficult. Big steel mills should also contribute while benefiting from preferential policies.
CBN: According to our understanding, many small steel mills have survived by investing little or nothing in environmental protection.
Zhang Xiangqing: Some small steel mills have this situation. Some have evaded taxes for a long time, allowing their profit per ton of steel to increase by 100 to 200 yuan. Under such circumstances, how can steel mills that genuinely contribute to tax revenue survive? My company spent 2.5 billion yuan on environmental protection and water recycling, and pays a large amount of taxes every year. However, some small steel mills that evade taxes and ignore environmental standards continue to operate, and some local governments have not shut them down due to taxation. But in the long run, these companies are more harmful than beneficial. Therefore, I suggest the state conduct strict inspections on these tax-evading and non-compliant companies.
CBN: The wave of mergers and reorganizations in the steel industry is now very high. The four major state-owned steel companies in Tianjin are preparing for joint reorganization. Some believe that the living space for private steel mills is getting smaller. What do you think?
Zhang Xiangqing: It's beneficial to build a large steel group for centralized procurement and sales. The increasing number of large steel groups is certain to squeeze small steel mills, but small steel mills can improve product quality and invest in upstream industries to enhance their competitiveness. This year, Rongcheng Steel's strategic plan includes a second high-speed wire rod production line, a 1 million-ton direct-reduction iron project using a rotary hearth furnace, a 1.5 million-ton oxide pellet project, a 1200m³ blast furnace, and a nickel smelting project. The construction of these new projects will upgrade Rongcheng's overall technical equipment and competitiveness to the best level in the industry.
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