Armco Metals, Midland Resources form steel scrap supply deal

ARMCO Metals Holdings, a distributor of imported metal ores and a steel recycler in China, has entered into a steel scrap supply agreement with Midland Resources (China) Co. Ltd, a Hong Kong-based joint venture with Shagang Steel Group. Midland serves as the exclusive agent for Shagang Steel for the sale of its steel products in the Hong Kong markets. Midland fulfilled the sale of over 400,000 tons of steel products for Shagang Steel in 2013. Shagang Steel ranks as one of the largest importers of steel scrap in China.

Under the terms of the agreement, Armco Metals will act as a sourcing agent for Midland to import steel scrap into China. The agreement also enables Midland to utilise its import licenses and financing capabilities to import steel scrap for direct processing by Armco Metals. Processing under this method would substantially improve Armco Metal's cash flow and expand its processing capabilities. Armco Metals sees this as a significant first step in becoming a processing base for both Midland and Shagang Steel.

Commenting on the agreement, Kexuan Yao, chairman and CEO of Armco Metals, stated, “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 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 stabilise 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, 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.”