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This is an extract taken out of Metal Bulletin Weekly, 2010, on the trends of China’s Steel Future.

The stainless steel market in China has been undergoing a similar powerful growth to that of many other metals over the last decade, and the country has now soared to become the global leader in terms of both demand and production. In turn, this has now boosted its consumption of the raw materials such as Ferro-Alloys and Nickel to a similar top position in the world. Back in the year 2000, China’s raw stainless output was only 690,000 tonnes. However, this was just the beginning of a progressive investment in capacity that raised production to 7.5 million tonnes in 2007, according to the International Stainless Steel Forum (ISSF). Output dipped to 7.1 million tonnes in 2008, however, recovered strongly last year to reach 8.8 million tonnes – a 26.8% rise. With global production put at a preliminary 24.58 million tonnes, China accounted for nearly 36% of the total in 2009. Nevertheless, other sources estimate even higher production and market share. Major expansion projects now under way and coming up in the next few years mean that the country’s total melting capacity will reach 23 million tonnes by 2015, however other sources estimate this figure to be even higher.

The main aim of China’s stainless investments seem to be meeting rising home consumption, not exports, says Adam Panayi, metals analyst at Metal Bulletin Research. In fact, there is small incentive to export because Chinese domestic prices remain high relative to international markets. Since November, prices for 304 grade, 2 mm CR coil have risen from RMB 19,000/tonne to around RMB 24,500 ($3,587)/tonne in early May.

Although China’s exports of finished stainless are quite low, its exports of manufactured consumer goods have, of course, come to dominate large parts of the world, with substantial quantities of stainless exported in the form of finished home appliances and white goods. This sector is the largest market for stainless in China with some 40% of demand, serving not only exports but also the rising living standards of its own population. Industrial machinery and engineering is estimated to be the second largest market, with some 31% of demand, driven by continuing industrialisation. Architecture, building and construction consume about 22%, while transport accounts for 5%.

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The Importance of Due Diligence

Due Diligence is the first and most important step to take in the sourcing process of any product from China. And it plays a vital role in our Stage 1 Research and Tender Service that establishes a solid sourcing foundation by identifying legitimate and reputable  suppliers.  The definition itself tells us what every prospective importer needs to do in order to protect themselves and ensure that their supplier will deliver the products they order as specified. Let’s take a look at how the due diligence process applies to the sourcing and importing of products from China.

Firstly, we see that Due Diligence is a process of investigation; an investigation into the details of a potential investment. And the process of investigation encompasses an examination of the operations and management of the potential investment in addition to the verification of material facts.  If we were to apply this simple definition to sourcing and importing of products from China it would look something like this:

Due Diligence for the Importing of Chinese Products

Process of Investigation – To examine the operations and management of the source of the products that we intend to purchase and verify that they are capable of supplying these products at acceptable levels of quality, consistency, and price. To examine the products  (investment) we intend to purchase in terms of quality and specifications.

Details of Potential Investment – The products in terms of quality, specifications, price, and availability. The supplier of the products in terms of quality control, pricing, production capacity, delivery dependability, reputation and standing within the industry.

The big difference between importing products directly and buying locally is the necessity for a thorough due diligence process that must be done in order to be successful.  Practically all of the enquiries we receive requesting dispute resolution assistance and/or troubleshooting with existing or prospective suppliers are based on the lack of due diligence from the start.  We must remember that finding the product we want is not the problem.  Finding the right supplier who can and will supply consistently over a long period of time is.  This is why we highly recommend prospective importers utilize our Research and Tender Service so as to avoid disappointment and financial loss with an inappropriate supplier in the future. The benefits over time will outweigh the cost of this service many times over.

The purpose of the due diligence process used in our Research and Tender Service is to  ensure that only bonafide suppliers are introduced to our clients.  Below is a simplified illustration of the due diligent process that results in a short list of prospective suppliers that tender for your business.  It is not uncommon for more than 25 prospective suppliers to be investigated and contacted in order to ensure a short list of 4 or 5 qualified suppliers.

I believe there is no other service offered in Australia as comprehensive and flexible as ours. If you would like to know more about due diligence and our Research and Tender Service, please don’t hesitate to contact us.