Recently, news of the suspension of production of Haixin Iron and Steel blast furnace in Shanxi private enterprises and the bank's door-to-door debt collection triggered market shocks. Before Haixin, other places also suffered from steel factory capital chain breaks and bosses running. Insiders warned that considering the huge scale of the steel industry, once this sporadic case merges into a trend, it will bring worse results than the steel trade credit crisis. Regardless of local governments or financial institutions, we must pay close attention to the financial risks of overcapacity industries.
Steel industry management: no worst, only worse
As a hard-hit area with overcapacity, the steel industry's situation in recent years can be described as “two highs and two lowsâ€: high output, high cost, low steel prices and low efficiency. “In general, 2012 is an inflection point. Since this year, the expansion rate of China's steel production capacity has obviously exceeded the growth rate of demand. The serious imbalance between supply and demand has caused the industry to be on the break-even line.†The consulting firm “Steel House†Manager Wu article pointed out.
Although in 2013, with the recovery of the macro economy, the domestic steel industry turned around overall, but the state of “two highs and two lows†did not fundamentally change. Liu Zhenjiang, party secretary and vice president of China Iron and Steel Association, recently said that the benefits of the steel industry in January and February 2014 were worse than the previous two years. In January, the key statistical units lost 1 billion yuan, and the company's loss reached 43%, a record high. The situation in February was also not good. "The first quarter of this year may be the worst quarter since the steel industry entered the new century." h In fact, this "worst" may have to be questioned. As China's economic growth slows, especially from the reliance on investment, the growth of steel demand has become extremely limited. It takes time to resolve the huge capacity that has been formed, which will be a very painful and lengthy process. In the view of Cao Huiquan, chairman of Valin Iron and Steel Group, the difficulties in the steel industry will continue for several years, because it is not yet in the cold winter stage, at most it is the early winter.
Credit defaults from steel trade to steel mills
As a large industry with a production value of trillions of yuan, the upstream of the steel industry is ore mining, and the downstream is steel trade. The most vulnerable and the first thing to happen in this industry chain is the steel trade credit crisis that began at the end of 2011.
In February of this year, the steel trade credit crisis reached its peak with the Shanghai Steel Trade King Xiao Jiashou being sued by the bank. In this industry turmoil, more than one-third of merchants have already gone out. In the steel industry chain, steel traders play a role as a “reservoirâ€. “Many steel mills rely on steel traders to maintain their operations in advance when ordering. Steel traders have disappeared, and it is hard to say that steel mills can be independent.†Qiu Yuecheng, a senior analyst at the steel spot trading platform “Xiben Shinkansen†said.
Another major pressure on the steel industry is the strict implementation of environmental protection policies. Due to the spread of smog weather throughout the country, the energy-consuming steel industry has become the target of public criticism. According to He Wenbo, general manager of Baosteel Group, to meet the government's emission standards, only environmental protection operating costs, 100 yuan per ton of steel. For many steel mills struggling on the profit and loss line, 100 yuan is enough to become the last straw to crush them. As a capital-intensive industry, every time a steel mill falls, a bunch of banks can be brought behind.
In fact, banks have already detected this risk. The reporter learned that a large state-owned steel group in the east has received letters of concern from major banks, and it is difficult to release the loans after they have been recovered. When the most stressful, the company's capital stock can only last for 10 days.
Preventing sparks and avoiding systemic risks
In the past two years, the default of steel trade credit has caused the major banks to be overwhelmed. But compared with steel mills, steel trade can only be regarded as "pediatrics." According to public information, only Haixin Steel has a debt of 3 billion yuan. According to statistics, the total liabilities of the national steel industry are about 3 trillion yuan, and the debt ratio is nearly 70%. Among them, bank loans amounted to 1.3 trillion yuan, and the rest of the social financing, a considerable part of the final source is the bank.
At present, the industry's biggest concern is that the steel plant's capital chain break will evolve from a sporadic case to an industry phenomenon. "Once the above situation occurs, its destructiveness is more than the steel trade crisis." Wu said.
However, in the view of Li Xinchuang, deputy secretary-general of the China Iron and Steel Association and president of the Metallurgical Industry Planning and Research Institute, it is unlikely that this will happen. “The problem with steel trade loans is that there are frauds, such as warehouse pledges or empty pledges. Steel mills’ loans in banks are mortgaged with physical assets, such as land, plant and equipment.â€
According to Xu Xiangchun, director of information management of “My Steelâ€, compared with steel traders, steel mills have much greater influence at the local level. “First of all, local governments will not sit idly by, because every steel mill has at least thousands of jobs. In addition, banks are not willing to act rashly. As long as the cash flow of the steel mill is positive, banks generally do not lend. When a family draws a loan, others will follow suit, thus killing a still-working company, which will bring greater losses to the bank."
Although systematic risks can be avoided in the case of coordinated coordination, local risks are difficult to eliminate. “Even if there is mortgage, the security of bank loans is very problematic. Because the assets of steel mills are not only land, but the equipment and equipment are basically scrap iron, the actual value will shrink greatly, and eventually it will bring certain banks. The bad debts.†Wu pointed out that it is necessary to pay special attention to the credit risks of two types of steel enterprises: one is a company with a high debt ratio, and the other is a company with blindly diversified investment and a long battle line.
Li Xinchuang pointed out that credit defaults in some steel mills are not a bad thing, which is precisely part of the survival of the fittest in the entire industry. In the process of the withdrawal of these steel plants, the government should do a good job in the after-sales work of the employees. "In theory, the province's approved projects are responsible for the provinces, and the city's approved projects are responsible for the project. This can, to a certain extent, curb the enthusiasm of local projects."
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