Capital Conditions Worsen at Chinese Steel Mills

SHANGHAI, Sept. 5 (SMM) – Liquidity pressures are growing bigger at Chinese private steel mills, Shanghai Metals Market’s ferrous branch Steelease learns. 

 

It was reported Sept. 2 that one steel mill in China shut down due to tight liquidity and high billet prices. 

 

Since the outbreak of steel trader default two years ago, Chinese steel mills have been under growing financial pressures. In fact, some steel mills were forced to shut down in the first half of the year as banks tightened lending, while others went bankrupt.  

 

During the first half of 2014, financing costs at industrial companies rose 16.5%, up 13.9 percentage points year-on-year. Interest expenses at these companies grew 11.2%, up 6.2 percentage points year-on-year. This growth in financing expenses is another key reason behind the steel mill bankruptcies. 

 

China’s steel industry has long suffered overcapacity despite the central government’s efforts on retiring inefficient capacity. Steel prices have continued to fall on weak demand, biting further into producer margins. Banks continue to tightening lending, implying that ever more steel mills may face bankruptcy.