China’s main trade association for metals is building a consortium blockchain to cover the entire steel supply chain. Chen Leiming, Vice Chairman and Secretary-General of the China National Association of Metal Material Trade, outlined the development in an interview with Huoxun. China is the world’s largest producer (51%) and the largest consumer of steel. The steel trade association set up the Steel Industry Chain Blockchain Alliance in 2018. 

“I think that blockchain technology has a lot of room to play in the steel industry and the field of commodities,” said Leiming in a statement. 

Issues in the Chinese steel sector

Leiming sees Chinese overcapacity and the absence of coordination within the supply chain as the two primary challenges facing the steel sector. In 2019, China’s crude steel production hit 996.3 million tonnes, and consumption reached 889.8 million tonnes. Even with the excess production, the capacity is even higher. Moreover, Leiming states there’s a lack of coordination between upstream, midstream, and downstream players. He recommends utilizing technology like blockchain to enhance productivity and efficiency in the movement of goods. 

Problems with finance

Ten years ago, various cases of double-financing of warehouse goods came to light, which dampened the risk appetite of banks. Leiming says in a statement blockchain could allow traceability of steel from mine to finished product, involving storage, trading, processing, and logistics. As an immutable ledger, blockchain could offer proof of provenance and decrease the risk of fraud.

While Leiming recommends this can decrease the risk of repeatedly pledging the same assets for finance, this depends on a single blockchain or interoperable platforms so that all financiers coordinate to assure there is no double pledging.

Other steel blockchain applications

The Alliance is recently the primary blockchain consortium in the steel industry. Nevertheless, a handful of blockchain use cases are being used in the sector.  One of the applications is for supply chain finance. In 2015, China’s state-owned steel company Baosteel helped set up an online e-commerce steel portal, Ouye Yunshang. 

In 2018, the portal built the “Shanghai Commodity Blockchain Supply Chain Financial Application Demonstration Project” in Association with the Central Bank Digital Currency Institute. It develops a digital asset “Tongbao” representing the financed invoice liability on the blockchain.

The supply chain finance platform processed 20 billion yuan in cumulative transactions and had about 1,000 SMEs partaking at the end of October 2019. The smallest transaction was for as little as 3,800 yuan ($535). Since then, the Tongbao assets have been bundled up as an Asset Backed Security (ABS) and listed on the Shanghai Stock Exchange. Another initiative is a blockchain digital asset platform developed by Jiwei Internet of Things. The solution allows the tracking of goods between warehouses and the transfer of cargo rights and other assets. Lastly, Zheshang Bank has created five service platforms, involved a receivables blockchain, and a warehouse receipt solution.

Consortium blockchain

Now, the Association is developing a consortium chain, particularly for the steel industry utilizing blockchain, AI, IoT, and other technologies. The aim is to bring all stakeholders on a single platform and create a modern steel supply chain. “Blockchain technology can play a role in the entire link of the steel industry, such as raw material procurement, production and processing, trade circulation, logistics and transportation, processing and distribution, and to the terminal link,” said Leiming in a statement. 

He added that it could also prove beneficial for funding by allowing better trust via IoT and other sensor technologies. The blockchain project has the aid of Baosteel, Wuhan Iron and Steel, Anshan Iron and Steel, and other enterprises. Other organizations supporting the initiative are the China Construction Department, China Railway Department, and construction and automobile companies in some provinces and cities.