Journey 1995:Non-Stop

Chapter 357 Understanding Steel Trade (Part 2)

The steel business is a commodity business that requires substantial capital and is difficult to finance with loans.

Therefore, even some real estate development companies will not touch steel.

Generally speaking, in a city like Jinan, to become a first-tier distributor, you need to guarantee the sale of at least 10 tons of steel per year, which translates to an annual turnover of around 3.5 million yuan. This is no joke.

The reason why steel mills need such city agents lies in the problem just mentioned—blast furnaces cannot be stopped. Steel mills must have very stable sales channels. For example, Laiwu Steel has large enough storage yards and warehouses. It doesn't matter if it can't sell tens of thousands of tons of steel every day, but if it has hundreds of thousands of tons of goods piled up, there will be big problems. Both capital and warehousing are major issues.

Therefore, steel mills must rely on excellent agents and dealers, and for the sake of stability, they are not so concerned about the level of profit.

For example, suppose the cost of one ton of steel is 100 yuan, and the steel mill sells it for 110 yuan. However, in a certain region, due to other competitors, the steel mill can specifically price it at 105 yuan. In short, ensuring the stable and continuous sale of goods is a problem that every steel mill must balance.

Furthermore, if a steel mill is preparing to open a new production line to expand production, it must find and sign contracts with agents before starting the furnace; otherwise, it will not dare to increase production arbitrarily.

In recent years, steel mills' production capacity has been in the process of increasing, so there will be new first-level agent slots, which can be considered a benefit of the times.

This is different from Yan Hui's chemical industry. Yan Hui's industry is more flexible now, and there is much less competition.

Given the steel mill's background, first-tier distributors can obtain the lowest prices, but the entry barriers are also the highest. These are the so-called "large wholesalers".

The main use of steel is in construction. There is a calculation formula: a 17-18 story high-rise residential building requires about 55 kilograms of steel per square meter; a high-rise building of about 30 stories requires about 75 kilograms of steel per square meter.

High-rise buildings require shear wall structures, which are absolutely inseparable from steel reinforcement.

The first large-scale real estate project Yan Hui worked on was 20 square meters. He started his business by supplying plywood to that project. This kind of large-scale project of 20 square meters requires about 1.5 tons of steel, which is more than 5000 million yuan in steel costs.

In the construction process, steel costs typically account for about 20% of the total cost of a construction site.

Yan Hui was completely unaware of such "knowledge points" back then; if he had known, he would have been shocked.

These kinds of projects have nothing to do with ordinary people anymore.

Yan Hui's thoughts were immediately drawn back to those years.

At that time, construction officially started, and General Manager Han held a mobilization meeting, which was also a way to treat everyone to dinner. There were dozens of people in the office at the time. My brother-in-law was an air conditioner supplier, and Zhou Ping's uncle, General Manager Zhou, was a tile supplier. These suppliers couldn't even sit at the head table during dinner.

If they were steel or cement suppliers, they would definitely be sitting at the head table. At that time, Yan Hui didn't know the specific identities of the people at the head table. Although his friends had talked about it, it was all just gossip, and he couldn't understand it at the time.

Without standing at this level, he would never understand why Mr. Han didn't care about the plywood business back then, nor would he understand why Mr. Han was so indifferent when he said, "I'll share half of the profits from the plywood business with you."

As for President Han, since he has taken a liking to something, he might as well lend a hand if he wants to. It's no big deal.

If Yan Hui were to meet a great young man right now, someone who is extremely serious about his work, respectful to him and never tries to fool him, Yan Hui could casually throw him a small project to work on. This project might earn him 20,000 yuan a month at the beginning, but it wouldn't matter to Yan Hui; it's purely a matter of mood.

At this point, Yan Hui's status and position had completely changed. His relationship with the leaders of the High-tech Zone was getting better and better, and he had also come into contact with many core positions in the city. He was making more and more friends, and his perspective was also becoming more elevated.

Since August, Yan Hui had been planning and investigating the steel market. He was extremely cautious, and by November, he had not officially started anything.

In November, Heng Hui Chemical's cash balance had accumulated to nearly 10 million yuan. Yan Hui gradually calmed down because he had recently come into contact with too many big shots. Anyone in the steel business, especially a first-tier agent, was basically a big shot in their region.

Of course, there are irregularities in various regions at present. It is said that every time a construction site is tendered, a large number of secondary agents will be involved in manipulating the market, offering bribes and creating confusion to win steel contracts for some construction sites. In this situation, primary agents are not necessarily guaranteed to benefit. In short, this is a very complex field.

Yan Hui entered the industry with a learning attitude, and thus got to know several seniors, one of whom was Brother Li Shengli, who was Laiwu Steel's first-level agent in Linzi.

Li Shengli is a little over 40 years old. He started out in the coal business, reportedly working in that line for nearly 20 years, struggling and facing life-threatening situations several times. He later achieved several upward social mobilitys, eventually accumulating assets worth tens of millions of yuan. Later, through steel brokerage, Mr. Li's assets further increased, and now they are at least 40 to 50 million yuan.

Mr. Li's car is a second-generation Bentley Flying Spur with a W12 engine and 560 horsepower. In Linzi, many people call him "Bentley Bro".

Li Shengli was to Yan Hui's liking, and since he was also acquainted with her brother-in-law, Yan Hui had eaten with him a few times, so they were considered to be friends.

After learning about Yan Hui's company, Li Shengli was amazed. Although he couldn't know the profit margin of the chemical industry, he knew that Yan Hui was really capable. The key was that Yan Hui was only 28 years old and had relied on himself!

Yan Hui has a high cash flow now, so he's not so careful with his spending. Although his car is just a BMW, his spending is on par with Bentley's, so the two quickly became friends.

“Steel trading is not allowed across cities. The steel I got from Linzi can’t be distributed to you. And the resources you have on those construction sites in Quancheng can only be used in Quancheng. Let me tell you, you were right not to sell that plywood company in the first place! Otherwise, you would have completely severed your ties with the construction sites!” Li Shengli said with emotion.

This industry isn't one where money alone can get you in, because money doesn't guarantee sales. But Yan Hui has that. His plywood business holds a near-monopoly in the region, almost becoming a brand, so he knows many developers on construction sites. Generally, people who supply plywood and other standard materials to construction sites wouldn't have access to steel trading, but Yan Hui has managed to do just that.

After going around in circles, we've returned to the construction site supply chain.

(End of this chapter)