Deal is expected to improve Chinese company’s operation.
Armco Metals Holdings, Inc., a U.S.-based company, has announced that its Armco (Lianyungang) Renewable Metals, Inc. subsidiary, has entered into a steel scrap supply agreement with Mitsui & Co. (Shanghai) Ltd., which is a wholly owned subsidiary of Mitsui & Co., Ltd. Mitsui’s business covers energy, machinery, chemicals, food, textile, logistics, finance and more on a global scale.
Under the terms of the agreement, Renewable Metals will serve as Mitsui Shanghai's vendor for sourcing, processing and supplying scrap metals with various specifications and standards. Mitsui Shanghai has agreed to advance payment for the joint purchase of raw materials and complete final purchase of the steel scrap upon completion of processing services.
In a press release, Armco says the newly applied purchasing business model for Renewable Metals is designed to better enforce its supply agreements with customers and lower business risk. Armco says that Mitsui Shanghai, a subsidiary of one of the largest general trading companies in Japan, estimates it will purchase between 15,000 and 20,000 metric tons of steel scrap on a monthly basis.
In addition to the potential for significant recurring revenue, the advance purchase terms of the agreement will help to substantially improve cash flow for funding Armco Metals Holdings' daily operations and future expansion plans.
Commenting on the announcement, Kexuan Yao, chairman and CEO of Armco Metals Holdings, says, "We look forward to a successful partnership with Mitsui & Co. as we expand our steel scrap distribution channels to Japan. We appreciate this opportunity to establish a long term business relationship with one of the largest general trading companies in the world, and we intend to work diligently to support Mitsui & Co. in their efforts to help us achieve significant sales growth in fiscal 2014 and beyond."
When the two companies initially began researching opportunities last year China Armco determined that there were differences and advantages between Chinese and Japanese markets. China Armco noted at that time that it possessed advanced processing equipment and comparatively lower labor cost, while Mitsui Bussan Metals Co. owned abundant funds and a relatively complete industry chain. Creating a partnership would ultimately work to relieve the capital pressure of China Armco and make up the capacity shortage due to the lack of raw materials.