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Crashing Steel Prices Lead To Largest Chinese Bankruptcy, "Will Be Followed By Others"
With growth rates for steel products at or near record lows and prices for end-product having plunged to record lows, it is little surprise that the Steel industry would provide the largest Chinese bankruptcy yet in this cycle. As Bloomberg reports, unlisted Haixin Iron & Steel - which halted production and defaulted on CNY3 bn in March - has started bankruptcy proceedings. Having spent 8 months hoping for the government bailout that every Western onlooker believes is every firm's god-given right, a reorganization application for the Wenxi, Shanxi province-based company (with $1.7 billion of total debt) was accepted by the Yuncheng City Intermediate People’s Court. This is just the start as "Haixin Group’s bankruptcy will be followed by others," according to researcher Mysteel.com's Chief Analyst Xu Xiangchun.
Output growth (or degrowth) of Steel product is near record lows and still prices are crashing...
Haixin Iron & Steel Group, an unlisted Chinese steelmaker that halted production in March because of a capital shortage, started bankruptcy proceedings, making it the largest mill in the nation to enter the procedure.
A reorganization application for the Wenxi, Shanxi province-based company was accepted by the Yuncheng City Intermediate People’s Court, according to a statement posted on chinacourt.org, a government site that lists legal proceedings. Creditors are required to claim their rights by Feb. 22, the statement said.
China’s slowing economy and the country’s measures to tackle pollution are taking a toll on its steelmakers already plagued by industry overcapacity. Haixin Group’s bankruptcy will be followed by others, according to researcher Mysteel.com Chief Analyst Xu Xiangchun.
“Instead of reorganization efforts conducted by local governments, this is an inevitable trend that China will take more ailing steel mills to the courts to protect creditors,” Xu said by phone from Beijing.
...
Haixin Group has 10.5 billion yuan of debt, compared with 10.1 billion of assets, the official Xinhua News Agency reported yesterday, citing “public data.”
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But apart from the entire Steel industry being on the verge of bankruptcy... China is doing great!
“There has to be a restructuring of the Chinese steel industry,” Eder said.
“The iron-ore producers are getting more and more aware that their growth expectations have to be redefined. There are enormous over-capacities and more is coming on stream. This will increase the pressure.”
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Think it's irrelevant - of course you do - except the yield on 3.50% govt bond due October 2015 up 5 bps to 3.660%; headed for biggest daily increase in 1-year sovereign yield since July 21, according to data compiled by Bloomberg.
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But what should be really worrisome is the potential for global contagion (as Bloomberg adds),
It’s a big change. Every year for the past decade, China has added new mills with the capacity to exceed the annual production of Germany, the largest steelmaker in Europe. The surge in new blast furnaces created a consumption vortex, swallowing half the world’s iron ore and creating unprecedented wealth from Australia’s Pilbara region to Brazil’s Amazon basin. That gravy train, generating annual iron-ore sales of about $160 billion last year, is slowing.
The major flaw of producers of iron ore, the most traded commodity after oil, is they tend to be “over-bullish,” said Kirill Chuyko, head of equity research at BCS Financial Group in Moscow.
“Humans make mistakes,” said Chuyko, who thinks peak steel has been reached. “Chinese demand is going south.”
Surprise!! Artificially low rates and money-printing has led to massive mal-investment and the blowback is beginning...
Mining giants have wagered $120 billion on belief that steel production in China won’t peak until as late as 2030. As the price of the key steelmaking raw material continued its descent to a five-year low today, it increasingly looks like they got that wrong. It’s a miscalculation that could have huge consequences for companies led by BHP Billiton Ltd. (BHP) and Rio Tinto Group.
“I’ve always taken the view that the miners had the best intelligence on this as large investment decisions are based on it,” Richard Knights, a mining analyst at Liberum Capital Ltd. said by phone. “But if they get it wrong by a just a small margin, that has major implications for profitability and the share price for years to come.”
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lots and lots of overproduction produced with highly leveraged debt isn't a recipe for success? Someone should tell the US that.
Yea, free money is a root cause of a medical condition known as "Colossal Crainial Flatulance". Outcome is well known to be very bad.
"Haixin Group has 10.5 billion yuan of debt, compared with 10.1 billion of assets"
That's not a bankruptcy, that's a going concern in this country. Now if you told me they had 105B in debt, and 10B in assets, then I'd say they were finally as good as knocking off wall street as they were nikes.
Let me correct that for you...
10.5B of hypothecated assets
It takes a lot of concrete and steel to build concrete and steel plants.
Godless Commies not giving the company their God Given Right Bailout.
See, Joe McCarthy was right.
They're under every pile of rehypothicated rock, lump of coal, bar of iron and drop clean water.
humming Floating Down the Yangtzee with my Sweeheart Piggies Bobbing Beside Me
Doubtless the Communist party will find somebody to blame and will perform the traditional
human sacrifices...
Yes, but what is output of India and Africa? Iran and the EU have increased their steel production http://www.worldsteel.org/statistics/crude-steel-production.html
Australia, welcome to the shitstorm as iron ore and coal prices crash lower and government tax receipts go with it. The Aussie dollar will follow and the housing market will have its Irish/Spanish/Californian etc. moment of truth. Massively over-leveraged banks and their stock prices aren't going to look too flash in 12 months. With luck it won't end up as a soverreign solvency crisis and a bank bailout, but then hope is not a strategy...
That's Ozed
Yeah, and all the talking heads say it's OK and the equity managers say it's all discounted.
uh huh uh huh uh huh
The funny thing is how the AUD$ was used to support equities.
Global Economy on Unquestionable Decline Leading to War-Gerald Celente
http://investmentwatchblog.com/global-economy-on-unquestionable-decline-leading-to-war-gerald-celente/
Where's TruthInSunshine? He assured us that all was well with the Chinese economy!
;>)`
Missing sarc tag, right?
I've been saying that it's China economic weakness/capital misallocation, and and not Japanese financial/fiscal issues (currency wars notwithstanding - in fact, China will be accelerated/pressured into debasing CNY by Japan) that leads to next major global economic crisis, for over 1 1/2 years now.
The Aussies are fucked
Yeah, but they drink a lot so they won't notice
Won't the Russians win that contest?
Fast growth tends to mask flaws and weakness within a system, and China has been growing like a weed for years. To make things worse many of the investment decisions were driven by politics and often influenced by corruption. This has created massive overcapacity. Money has been poorly allocated and often shoveled into deep holes like ghost cities and bridges to nowhere. The article below delves into the problems this is creating.
http://brucewilds.blogspot.com/2013/11/china-land-of-overcapacity-and-debt.html
It may just be some insiders running compitition out of business or other non-global reasons. Time will tell of course.
The running up of the dollar will have a global effect on commodities and the credit they need.
Dont worry supply-side economics will save you from the credit implosion by lowing the cost of money even more.
For decades the world has been moving away from steel and towards other products, especially in motor vehicles.
At some point we were going to have too much capacity and the price would be affected going forward.
Perlhaps this will make still affordable for other products going forward that had been considered too expensive.
This is how the markets work.
Building sector is using more steel than ever before. Wood has been replaced with steel. Welding trade is not able to keep up with demand.
Thailand is a carbon copy of this.......
Hey maybe the monetary overlords will get their "higher inflation" after all, but just not in the way they had hoped/expected. Perhaps it will come through a rapidly declining supply of goods via large scale bankruptcies, and the continuation of exponential growth in population and the money supply....
As I predicted, politburo/ultra-elite will shutdown all pyramid schemes one by one and bail out only the ones connected to them.
Soon, to occur for crude oil, copper etc, etc etc, worldwide.
When the good, moral, caring folks at the top can't coax it out voluntarily from their consumer/slaves, they will go out and forage for it at gunpoint. Isn't that where it always ends up?
It has already started. World is basically in peacemeal ww3
@ekm1,
what was your experience & how did you protect you & yours?
No way you can protect yourself from that if you participate
participate? i guess i'm too thick to understand. the way i see it, especially with laser weapons everyone is outgunned.
how about precautions based on what you've witnessed?
Oh, I thought you asked about pyramid schemes in China.
I don't think China will get into war. They are much smarter than that.
Not sure about Putin.
For years to come bitchez.
Luckily there are still stocks of excellent grade steel available in Chine, notably that which originated from the WTC after it was rushed away from America's biggest and most important crime scene ever. Yeah, some of it was still smoldering (*cough* – nanothermite – *cough*), but nothing to see here folks, let's send it overseas, and pronto.
Tinky french?
Tinky? French? Nah, he just type too fast.
Which is the bigger bubble - the subject of this article or Kim Kardashian's arse?
The tendency points to lower prices, but I cannot call it the CRASH, as the headline states....
If the Chinese want that rolled steel to roll out the door, they will need to be the new best deal lenders for auto sub-prime loans for the west to get consumption back up. This show gets better and better as we go, eh?
BAH... to big to fail
bail out coming !!!
it'll happen again and again and again till the cows come home ..
PLANET SUCKO !
Has a centrally planned economy ever survived more than 100 years?
What the article failed to mention is that Li Zhaohui, chairman of Shanxi Haixin Iron & Steel Group, and his family with assets of eight billion yuan (US$1.3 billion) is under investigation due to his connection to corrupt govt. officials. He failed to repay an expired loan of three billion yuan (US$480.6 million) back in April of this year. Many of these large corporations use the mutual-guarantee chain for funding and when one goes down the chains are rattled.
China should just build 50 aircraft carriers, 50 nuclear and deisel subs, a 100 destroyers, another 100 odd cruisers, etc. Problem solved.