Debt of Chinese steelmakers is approaching a critical level

The first six months of 2014 were not easy for the Chinese economy, which was on a slowdown path. And for the steel companies in China, the situation was even more difficult. More than half of the Chinese steel companies, summing up the first half of the year, found that their debts had reached alarming levels.

According to the financial statements of 33 steel producers, 18 firms have a debt-to-asset ratio of over 70 percent. At the same time, Bayi Iron & Steel Company Limited is saddled with the highest debt ratio of 86.46 percent. Analysts state that "For steel companies, a debt-to-asset ratio higher than 70 percent means the firm is facing a serious capital problem."

According to the China Iron and Steel Association (CISA), there are currently 86 steel companies in China that produced 411.910 million tonnes of steel, 362.020 million tonnes of pig iron and 552.250 million tonnes of CISA steel in the first half of the year. sector exceeded CNY 3 trillion. as of the end of June, and 43 percent of total debt, or CNY 1.3 trillion, stems from bank loans.

In addition, debt problems are expected to intensify for metallurgical companies, as the sector needs a fairly long time to get a return on investment. Today, even for the most efficient steelmakers, the debt-to-asset ratio remains above 60 percent, highlighting the difficulties of the entire sector.

Mysteel analysts say Chinese steelmakers have expanded too quickly over the past few years, mainly through borrowing from banks and other funding channels. As the debts of metallurgists are growing, banks are more reluctant to issue loans, thus squeezing their liquidity.