China’s iron & steel industry needs to act swiftly to defuse financial risks as the companies are running out of cash

September 17, 2013 Leave a comment

China Steels Teeters amid Financial Risks: Official

09-16 17:21 Caijing

China’s iron & steel industry needs to act swiftly to defuse financial risks as the companies are running out of cash, Xu Kuangdi, president of the Chinese Society for Metals, told a forum on Friday. Over 30 of 86 big and medium-sized steel companies reported a debt-to-assets ratio of above 75 percent in the first half of the year, government data shows. 20 companies posted a debt ratio of above 80 percent while five of them are actually insolvency, with their debt ratios above 100 percent.The 86 companies tracked by China Iron and Steel Association owed a combined of 3 trillion yuan at the end of June, of which 1.3 trillion were bank loans.

The number is equivalent to 1.67 times of total sales and 1327 times of total profits in the industry, according to Xu, which means the debt cannot be paid out even with total revenue from sales.

The austere debt-situation has been accompanied with the mismatching between rapidly-gaining capacity and slow growth in demand that has led to a plunge in steel prices so far this year. Production of crude steel rose 7.1 percent from a year ago in the first seven months while prices fell by 11.85 percent yearly in the same period.

Production of crude steel sets to fall in the next half of the year, with full-year output at roughly 780 million tonnes and profits remain meager, predicted by Qu Xiuli, deputy secretary general of the CISA.

In that case, “with tepid global demand and increasing trade frictions, exports are expected to stop growing,” Qu said.

Filed under Macro Trends

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