Metals News
Iron and Steel Industry Remains Weak, Traders Face Cash Flow Problems
smm insight
May 10,2012

SHANGHAI, May 10 (SMM) -- A woman boss of the steel trading market in Xiaguan District of Nanjing committed suicide recently due to financing risk. As the iron and steel industry has remained sluggish in the recent two years, many traders were pushed into losses, especially those having high inventories at hand fell short of cash flows fled and hid. Steelease believes traders will be still faced with cash flow problems due to weakening iron and steel industry.

According to the financial reports in 1Q of steel enterprises, domestic listed steel enterprises including Masteel, Anshan Iron and Steel and Nanjing Steel reported losses. Steel plants transform their pressure to steel traders so as to secure their own profits, further contracting profit margins at steel traders. In fact, almost all steel traders in Shanghai have been laying off employees or reducing salaries since the Chinese New Year holiday.

So far, some large steel traders are subject to financing situation rather than steel prices. Due to optimism, some traders were aggressively replenishing stocks with borrowed money, with some going so far as to borrow usury injecting to steel markets. But since steel markets have remained weak in recent years, inventories at some traders were unsellable, leading to cash flow problems. Steel traders have been reported to quit and fled since 2H last year.

China's central bank will likely loosen liquidity, injecting liquidity of RMB 389 billion in 6 consecutive weeks through open market operation. In the meantime, the government released policies to stimulate transportation and the real estate sector. But banks have tightened loans to steel traders since early this year. As such, cash flow problems should exacerbate despite inter-bank lending interest rates have been falling and domestic liquidity is loosened.

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