Insight
Internet boosts steel industry
Last Updated: 2016-11-07 09:52 | CE.cn
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By Li Jing

According to data released by the China Federation of Logistics and Purchasing show that by the end of last year, China has had more than 300 iron and steel online trading platforms, accounting about 48 percent of the total number of bulk commodity e-commerce enterprises in the country. It is in recent years especially that the steel enterprises, steel traders or the third party platforms are trying to take advantages of e-commerce driven by the requirements of the State Council on accelerating the development of productive services, promoting the adjustment of industrial restructure and carrying forward the "Internet plus" action plan. Under the dilemma of overcapacity in the iron and steel industry and universal loss of enterprises, this strong "e-commerce storm" has bucked the trend. The insiders expected that the market space of iron and steel online trading in the future will reach a level of trillions yuan.

However, compared with the rapid expansion of the iron and steel e-commerce, the real situation is shown as poor profitability with the majority of these enterprises having been in the development stage of cash burning and loss. But looking from the performance showed in the latest semiannual report 2016 released recently, a number of iron and steel e-commerce enterprises' revenue situation have changed, giving a rising trend on profitability and performance. Along with the gradual improvement of the basic functions of the steel online trade, as well as the gradual advance of the recognition that the industry users give to the e-commerce, the iron and steel e-commerce enterprises are going out of the loss and working hard to enter a new stage of development.

The performance improvement being not brought by the market only

Li Xinchuang, vice president of China Iron and Steel Association (CISA) and president of China Metallurgical Industry Planning and Research Institute, believes that the poor profitability of the iron and steel e-commerce enterprises before was resulted mainly by two factors, one was that the iron and steel e-commerce enterprises were still in the stage of adapting to the market and facing the dual pressures of business model innovation and resource integration; the other was the grim situation faced by iron and steel industry that characterized by low demand, dropped market prices, business difficulties and serious losses, which made the iron and steel e-commerce enterprises very difficult to profit.

While viewing from the semiannual report released by the main iron and steel e-commerce enterprises, banksteel.com held by Shanghai Ganglian Group has realized revenue of RMB 16.635 billion yuan in the first half of the year, an increase of 85.14 percent year on year; Ouyeel under Baosteel Corporation has its operating income in the first half of 2016 reached RMB 8.68 billion yuan, an increase of 14 percent year on year; zhaogang.com has achieved sales revenue of more than RMB 13 billion yuan in the first half of this year, an increase of 200 percent year on year, and compared with the same period of last year, its indicators all have greatly improved.

In the first half of this year, iron and steel enterprises have generally had good business due to the raising prices of bulk commodities represented by steel, indicating that the picking up of steel prices have significant effects on driving the profits of iron and steel e-commerce enterprises going up. In this regard, Lang Yongchun, senior vice president and CSO of zhaogang.com, said that the company has been profitable for all business in the downturn of steel prices in last year. The development of e-commerce enterprises their own is the key to profitability.

"The profitability of iron and steel e-commerce enterprises should be based on the large quantity of transaction volume. Only when the transaction volume reaches a certain level, can the follow-up business of the transaction chain be achieved and the costs including technology costs be covered by the revenue." Lang Yongchun said that in the first half year the platform has completed accumulatively the transaction volume of about 17 million tons and the transaction amount of about RMB 42 billion yuan, of which the self business transaction volume of Zhaogang Mall has reached more than 6 million tons. "This earnings performance in this round of business should be attributed to the rapid increase in the self business transaction volume of zhaogang.com and the rapid increase of businesses like logistics, finance, warehousing and processing following the sharp growth of the transaction number of "matching + self-operating," said Lang Yongchun.

"The profitability of iron and steel e-commerce enterprises is related with the operation mode of the e-commerce platform becoming more and more mature and the operational efficiency having risen. Considering that in the future these aspects will be more perfect, the profit earning of iron and steel e-commerce enterprises will be inevitable." Li Xinchuang stressed that in addition to the upturn of the steel market, the iron and steel e-commerce enterprises having announced earnings one by one can also be attributed to the constantly enriching of the online services provided by them, the constantly improving of the offline supporting facilities and the enhanced overall operational efficiency of the platforms.

E-commerce thinking solving the "pain point" in trade

"For a long time, the biggest pain point faced by the iron and steel industry is the inefficient use of resources." Li Xinchuang said that the productive activities of steel enterprises did not take the market as the core, resulting in a mismatch between supply and demand. The emerging of e-commerce just can solve the problem of mismatch between supply and demand.

In terms of sales and circulation section, the iron and steel e-commerce enterprises have helped the steel mills transforming from the previous wholesale way to the present retail way, making steel mills be able to face the end customer directly and gain more profits. In addition, through the iron and steel e-commerce enterprises, the inventory turnover rate of steel mills has also been improved. According to Lang Yongchun, the traditional inventory turnover rate was about 30 days, while it has been compressed to 10.3 days on the platform of zhaogang.com. The capacity of steel enterprises has been reduced effectively.

At the same time, the terminal customer transaction data accumulated by e-commerce enterprises can be used for giving advice and suggestions to the development of steel enterprises. With the support of big data, the production mode of the steel mills can be transformed from the simple scale production in the past to the personalized production based on the orders, and the goal of lean production, cost saving and efficiency enhancing will be achieved. Therefore, the emergence of iron and steel e-commerce enterprises will not only increase simply the channel, but also help the steel mills to get better revenue and more stable and safe distribution channels.

Padded short board driving the industry to upgrade

At present, although the development momentum of the iron and steel e-commerce is good, the steel industry as a whole is still facing downward pressure, thus it is necessary for the iron and steel e-commerce enterprises to continuously enhance the service standards and the technology capabilities of the platform to maintain a healthy and sustainable development.

Iron and steel e-commerce enterprises are facing with a lot of bottlenecks with the prominent phenomenon of homogenization of competition being the first one, followed by the backward standard work and the imperfect credit system. In particular, the imperfect credit system has intensified the industry's bad competition situation.

Li Xinchuang believed that with the loss situation of the major e-commerce platforms being successfully reversed, the next step for the platforms should be taking advantage of the Internet and helping the iron and steel industry to transform and upgrade. "According to the statistics of CISA, the domestic steel turnover via iron and steel e-commerce in 2015 accounted for 21.9 percent of the total steel turnover, thus there is a great market space left." Li Xinchuang pointed out that in the future, the iron and steel e-commerce will be integrated with the iron and steel enterprises' internal system and will penetrate in deep into the iron and steel production and marketing chain. The iron and steel enterprises' intelligent manufacturing, warehousing, processing and logistics as well as the data exchange with the e-commerce platforms will be realized, thus forming a collaborative supply chain. "In addition, with the help of Internet financial services provided by iron and steel e-commerce platforms, the financing channels of iron and steel enterprises will be further broadened and the financing environment of the steel industry will be improved," said Li Xinchuang.

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