Steel Market Update was forwarded the following article by one of our contacts in Asia. The article quotes the China Iron & Steel Association (CISA) which reported high levels of debt within the Chinese steel industry. The Chinese appear destined to repeat what happened to the U.S. steel industry during the early 2000’s when many mills went bankrupt or were consolidated by larger mills. Here is the report:
The Chinese steel industry’s debts totaled Yuan 3 trillion ($480 billion) at the end of 2013, Yuan 1.3 trillion of which was bank loans and the rest social financing, Li Xinchuang, vice secretary of the China Iron & Steel Association (CISA) told local media on March 7.
He added that CISA’s member mills, which account for about 80% of China’s crude steel output, had their steel business sectors make losses for 13 straight quarters including quarter one 2014. Therefore the risk of broken cash flow has mounted in the industry and some mills should be eventually squeezed out of the market, he commented.
Li believed demand for steel from domestic and overseas markets would continue to grow in 2014, but it would take at least 4-5 years for the industry to return to profit given the current problems of overcapacity, industry fragmentation and high production costs.
Although Li stressed the government should assist in solving problems of re-employment, taxation and debts, and provide a safe way for uncompetitive mills to exit the market, but that was not to say state-owned mills should necessarily be saved from bankruptcy.
According to a recent Standard & Poor’s report, more private Chinese mills could default on their loans following Shanxi Haixin Iron & Steel, while state-owned steelmakers were not expected to default as government support gave them greater access to state banks and domestic capital markets. A gradual “phasing out” of troubled, privately-owned steelmakers could benefit larger state-owned mills by freeing up market share and allowing them to improve profitability, it added. (original author unknown)
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