China-based Armco will supply ferrous scrap to Hong Kong-based Midland.
Armco Metals, a China-based steel recycling and iron ore distributor with U.S. headquarters in San Mateo, Calif., has entered into a steel scrap supply agreement with Midland Resources Co. Ltd., a Hong Kong-based joint venture with Shagang Steel Group, a large China-based importer of ferrous scrap. Midland is the exclusive sales agent for steel products from Shagang Steel in Hong Kong markets, having sold more than 400,000 tons of steel products for Shagang Steel in 2013.
Under the terms of the agreement, Armco Metals will act as a sourcing agent for Midland to import ferrous scrap into China. The agreement also enables Midland to use its import licenses and financing capabilities to import steel scrap for direct processing by Armco Metals, according to Armco Metals Holdings.
Armco Metals says processing under this method would substantially improve its cash flow and expand its processing capabilities. Armco Metals says it sees this as a significant first step in becoming a processing base for Midland and Shagang Steel.
Commenting on the agreement, Kexuan Yao, chairman and CEO of Armco Metals, says, "Steel scrap is the only raw material in short supply in the steel industry. However, the challenges faced by declining steel prices has placed a huge burden on the whole industry supply chain. This situation has severely hampered our working capital in the second half of 2013 as we were faced with customer defaults and declining inventory values. Our management team has reacted by implementing a strategic plan to establish a platform strategy to help stabilize margins and achieve sustained profitability.
“Our profits, by nature, are mainly generated from scrap processing fees at our plant and this agreement with Midland allows for our new partner to manage much of the cash outlay for the importing and transportation of the steel scrap so we can increase our throughput in a far more profitable way. We believe that this importing partnership with Midland will be a win-win scenario for both companies for years to come.
“Additionally," Yao continues, “we are seeking environmental regulatory approval to increase our importing license from 5,000 tons to 20,000 which we expect to receive in 2014. We see this as an important move for future expansion when steel markets cyclically recover and our cash flow improves."