Online steel marketplace helps Chinese producers destock

SHANGHAI - An online platform matching steel producers with buyers has become an increasingly popular tool amidst overcapacity troubles facing the industry.

Zhaogang.com, a website that connects steel makers and market buyers, announced it raised 1.1 billion yuan in funding - potentially the last round of financing before it is listed on the domestic stock market, according to the company.

Beijing West Fund, backed by steel maker Shougang Group, and domestic broker Zhongtai Securities are the lead investors in Zhaogang's latest round of financing. The company has previously received backing from major venture capital firms from both China and abroad, including IDG, Sequoia Capital, Matrix Partners China and Zhen Fund.

The Shanghai-based website's business spans from steel trading, storage, processing, logistics and financing.

The steel industry was among a number of sectors in China saddled with overcapacity. The slowing economy dampened demand for industrial goods, leaving companies that produce them with unwanted stockpiles.

China has also made destocking one of its top priorities over the next five years in order to address overcapacity in heavy industry.

The country's current steel production capacity stands at 1.2 billion tons, but actual production only hit 800 million. While some companies secured deals with steel makers to buy steel immediately after production, about half of the 800 million tons is in need of buyers on the market.

Zhaogang.com said it wants to facilitate destocking for steelmakers by pairing steel suppliers with buyers through its online trading platform. This also fits with the government-endorsed strategy to pull some of the country's struggling traditional sectors from their current predicament through the help of internet and information technology.

Shanghai's Baosteel also invested 2 billion yuan in building its own online steel marketplace Ouyeel.com last year.

Though Zhaogang.com only sold 8.5 million tons of steel last year, accounting for 18 billion yuan, Wang Dong, the company's CEO, has an ambitious target of growing sales nearly tenfold in the next three years.

The company has already reported profit in its proprietary steel trading, storage and processing, though it has operated for less than four years.