Recent reports that some steelmakers are turning to Alibaba, the Chinese online marketplace, in order to export steel have highlighted the desperation of some steel producers in the current market. The truth, however, is that the Chinese steel industry has been increasingly investing in e-commerce over the last year, Kallanish observes.

Comments reported by Bloomberg suggest that northern China’s Tangshan Donghua is trying a range of methods to find new customers. This includes cold calling and listing items for sale on Alibaba.com, revealing a trend that many in the market in China will recognise. Times are tough and mills are willing to try any method to boost sales and margins.

China now has over 150 steel e-commerce platforms, although many of these are for sourcing within groups. Sites are being set up by steelmakers Wuhan Iron and Steel, Baosteel and Shagang, traders including China Minmetals and Zhejiang Materials and information providers MySteel and SteelHome.

Some of these sites are now trading 70,000-80,000 tonnes of steel per day, according to a recent research note from Standard Chartered.

Among the most aggressive projects is that run by Baosteel. E-commerce could account for 12% of the steelmaker’s revenue by 2016, Standard Chartered estimates from Baosteel’s targets.

This has partly been fuelled by jealousy of Alibaba, which held the world’s largest IPO earlier this month in New York. This resulted in $44.8 billion in dividends and share placements being given to its 11,000 employees, and has spurred investments in online steel trading platforms. The key factor, however, remains the competition to maintain margins and the need to reduce logistics costs to remain competitive.

If any of the new platforms wish to emulate Alibaba’s huge success, however, they will still need to overcome market fundamentals in a period of weak demand and oversupply, Kallanish notes.