Hebei Private Steel Enterprises Stop Buying Raw Material Steel Industry Capital Chains in Rare Winter

The year is very difficult, especially for steel companies. According to the latest news, due to financial pressure and shrinking markets, private steel companies in some areas of Hebei have stopped purchasing raw materials such as iron ore. The private stainless steel enterprises in Jiangsu and Zhejiang stopped purchasing raw materials such as high nickel iron.

Capital chain pressure increase

At the end of October this year, the Jianlong Iron and Steel Group and Minmetals International Trust Co. launched a trust plan to raise 300 million yuan to provide Jilin Jianlong with raw material procurement and daily operating funds. The expected annualized rate of return is 8.5%. In the middle of this month, Tianjin Trust established the "Tianjin Iron Plant Equipment Sale-Lease and Rent-back No. 1 Collective Fund Trust Plan", which raised 270 million yuan and is expected to have an annualized rate of return of 7.8% to 10.8%.

Analysts pointed out that iron and steel companies generally use internal financing methods and bank loans, and they rarely use trust channels. This shows that steel companies are becoming increasingly "starved" of funds.

The steel companies’ thirst for funds is also evident in the scale of bond issuance this year by steel companies. According to WIND statistics, as of November 28 this year, the steel companies planned to issue ** 31.98 billion yuan through bonds, while in 2010 steel companies issued debts of RMB 13 billion, and in 2009, only RMB 2 billion. In addition, since the second half of this year, steel companies have issued debt bonds that have been accelerating. Since August, seven steel listed companies have issued 16.98 billion yuan of debt, which is more than 15 billion yuan in the first six months.

In addition to the large increase in the scale of bond issuance by steel companies, the issuance period of bonds is also lengthening, and interest rates have risen. Prior to October 2010, the interest rate for steel companies issuing bonds was only 3%-4%, but in December of that year, the interest rate for steel companies issuing bonds had risen to 6%.

Analysts pointed out that the explosive growth in the scale of bond issuance of steel enterprises is related to the relaxation of the examination and approval procedures for the issuance of bonds by listed companies, but it is also closely related to the tight funding chain of steel companies. This year, the steel company’s bond issuance rate is between 5% and 7%, which is basically the same as the bank interest rate. But for steel companies struggling on the break-even line, the apparent increase in financial costs is still no small burden.

Some steel companies issued new debts for returning old debts. TISCO Stainless issued a corporate bond of 1 billion yuan on November 2 this year, with an interest rate of 5.51%. The 20 billion yuan corporate bonds issued by TISCO Stainless on November 19, 2010 will expire on November 19, 2011.

In addition, although there is no significant change in the asset-liability ratio of listed steel companies, it can be clearly seen from the three quarterly reports of companies that this year's short-term borrowings of steel companies have increased significantly. China Steel Association recently said that due to the increase in interest rates, the financing costs of steel companies have risen sharply, and the financial costs of key large and medium-sized steel companies in January-September have increased by 34.13% year-on-year.

Capital shortage stops purchasing

The tight capital chain has had a negative impact on the production and operation of steel companies.

According to the latest data, in mid-November, the average daily output of crude steel in the country was 1.637 million tons, which was basically the same as the previous month of 1.66411 million tons in November, but the average daily average steel production in November was significantly lower than the daily average of 2.1 million tons in October. . Steel production hit another record low during the year.

At the same time, the inventory of key steel companies exceeded 10 million tons again. Data show that the steel inventory of 76 key steel enterprises in mid-November was 10.03 million tons, an increase of 2.52% from the 9.78 million tons in the first half of November.

China Merchants Securities analyst Zhang Shibao believes that due to the impact of real estate regulation and control, the steel market demand has slowed down and steel prices have continued to fall. This has forced steel companies to reduce their production insured prices.

At the same time, he said that although the price of steel products has recently stopped falling, it has not coincided with the drop in raw material prices. The decline in the price of raw materials, including coking coal, has not kept pace with the decline in steel prices, which has caused steel companies' profit margins to be further squeezed. Steel enterprises' willingness to reduce production has been further strengthened.

Consistent with the pace of production cuts, some private steel companies have begun to stop purchasing raw materials. According to insiders of the Sinosteel Group, some private enterprises stopped purchasing iron ore and other raw materials in November due to financial pressure.

Industry insiders made it clear that steel companies in the Hebei Tangshan region have stopped purchasing iron ore raw materials. The source said that this is related to the drop in steel prices and the reduction of steel production, and it is also related to the expected drop in iron ore prices. He believes that iron ore will show an oversupply situation next year.

Regarding other raw materials, it is reported that stainless steel plants in the Southeast have reduced or even stopped purchasing high-iron nickel. It is reported that a certain steel mill in Jiangsu reduced the purchasing volume of high-iron nickel by 40% in September, and has completely stopped purchasing high-iron nickel in November. The same is true of a private steel plant in Zhejiang.

New project "winter"

"This year we must tighten our belts for the New Year." Some steel companies lamented. The steel industry began to experience a slump from the third quarter of this year and continued to decline in the fourth quarter. Market participants predict that during the “12th Five-Year Plan” period, there will be little chance for the country to relax controls and the steel industry will continue to be under pressure.

A brokerage researcher bluntly stated that the current days of iron and steel enterprises are not easy. With the end of the month and the end of the year, bank repayment requirements will increase the financial pressure on iron and steel companies, while poor sales and high inventory levels will allow steel companies to eliminate financial pressure.

Some listed companies have started to prepare for the financial statements in order to deal with the coming year, such as extending the depreciation period. Masteel announced that the company plans to adjust the depreciation period of equipment-type fixed assets from 10 years to 13 years starting from October 1, 2011. It is expected that the depreciation of fixed assets in 2011 will be reduced to 31,819,000 yuan, and the owner's equity and net profit of the company will increase by 238.64 million yuan.

However, some analysts believe that current large and medium-sized steel companies will not have major problems in cash flow. Although the banking industry has contracted, with the stabilization of steel prices, steel companies' cash flow should be positive.

However, the tight funding chain of steel companies will have an adverse effect on expansion projects. The source pointed out that the current operating profit of the steel enterprises cannot provide financial support for the new production capacity. This has led steel companies to rely on trusts and issuing bonds to obtain funds. In the future, these new projects will face serious financial challenges.

Wang Yifang, chairman and general manager of Hebei Iron and Steel Group, recently stated that during the “Twelfth Five-Year Plan” period, Hebei Iron and Steel and the Group will not increase one ton of production capacity, nurture and develop diversified industries such as logistics and finance, and realize the competitiveness of the Group from product to industry. Chain extension, forming a new benefit growth point. Hebei Iron and Steel will invest 8.6 billion yuan to build the steel logistics market.

Market participants expect that the steel industry may enter the industry consolidation stage next year. However, most steel companies are burdened with the burden of tens of thousands of people. To achieve market-oriented exit still faces enormous challenges.