The year is getting sad, especially for steel companies. According to the latest news, private steel enterprises in some areas of Hebei have stopped purchasing raw materials such as iron ore due to financial pressure and market shrinkage. The private stainless steel enterprises in Jiangsu and Zhejiang provinces stopped purchasing high-nickel iron and other raw materials.

Capital chain pressure is aggravated

At the end of October this year, Jianlong Iron and Steel Group and Minmetals International Trust Company initiated a trust plan to raise 300 million yuan to provide raw materials procurement and daily operation funds to Jilin Jianlong. The expected annualized rate of return is 8.5%. In the middle of this month, Tianjin Trust established the “Tianjin Iron Works Equipment Sale and Lease No. 1 Collective Fund Trust Plan”, raising 270 million yuan, and the expected annualized rate of return is 7.8% to 10.8%.

Analysts pointed out that steel companies generally finance through internal fund raising and bank loans, and financing through trust channels is very rare, which indicates that steel companies' “hunger” is becoming more and more obvious.

Steel companies' hunger for funds is also evident from the scale of bond issuance of steel companies this year. According to statistics from WIND, as of November 28 this year, steel companies intend to raise 31.98 billion yuan through bond issuance. In 2010, the scale of steel companies' bond issuance was 13 billion yuan, and in 2009 it was only 2 billion yuan. And steel enterprises issued debts have shown a significant acceleration trend since the second half of this year. Since August, seven steel listed companies have issued debts of 16.98 billion yuan, exceeding the 15 billion yuan in the first six months.

In addition to the large increase in the number of bonds issued by steel companies, the number of years of debt issuance is also lengthening, and interest rates are rising. Before October 2010, the interest rate of steel companies issuing bonds was only 3%-4%, but in December of that year, the interest rate of steel companies issuing bonds has risen to 6%.

Analysts pointed out that the explosive growth of the scale of steel companies' bond issuance is related to the relaxation of the regulatory approval process for listed companies, but it is also closely related to the tightness of the steel company's capital chain. This year, steel companies' bond issuance rates are between 5% and 7%, basically the same as bank interest rates. But for steel companies struggling on the break-even line, the apparent increase in financial costs is still a small burden.

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

In addition, although the asset-liability ratio of listed steel companies has not changed significantly, it is clear from the three quarterly reports of various companies that the short-term borrowings of steel enterprises have seen a significant increase this year. China Steel Association said recently that due to the increase in loan interest rates, the financing costs of steel companies have increased significantly. The financial expenses of key large and medium-sized steel enterprises in January-September increased by 34.13%.

Tight funding stops buying

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

According to the latest data, in mid-November, the average daily output of crude steel in the country was 1,663,700 tons, which was basically the same as that of the first quarter of November, which was 1,643,100 tons. However, the average daily crude steel output in November was significantly lower than the daily average of 2.1 million tons in October. . Steel production hit a new low for the year.

At the same time, the inventory of key steel enterprises once again exceeded 10 million tons. The data shows that 76 key steel companies inventories of steel in mid-November were 10.3 million tons, up 2.52% from the 9.78 million tons in early November.

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

He also said that although steel prices have stopped falling recently, they are not synchronized with the decline in raw material prices. The decline in raw material prices, including coking coal, has not kept pace with the decline in steel prices, which has led to further compression of steel companies' profit margins. The willingness to reduce production of steel enterprises has been further strengthened.

In line with the pace of production cuts, some private steel companies have begun to stop purchasing raw materials. According to insiders of Sinosteel, some private enterprises have stopped purchasing raw materials such as iron ore in November due to financial pressure.

Some insiders have made it clear that steel companies in Tangshan, Hebei Province, have stopped purchasing iron ore raw materials. The source said that this was related to the fall in steel prices, the reduction in steel production, and the expected decline in iron ore prices. He believes that next year iron ore will show a situation of oversupply.

In terms of other raw materials, it is reported that the stainless steel plant in the southeast region has reduced or even stopped purchasing high-nickel iron. It is reported that a steel mill in Jiangsu reduced the purchase of high-nickel iron by 40% in September, and completely stopped purchasing high-nickel iron in November. The same is true of a private steel mill in Zhejiang.

New project "Winter"

"This year, we must tighten our belts for the New Year." Some steel companies lamented. The steel industry has been in a recession since the third quarter of this year and continues to decline in the fourth quarter. Market participants expect that during the "Twelfth Five-Year Plan" period, the country will have little chance of relaxing regulation and control, and the steel industry will continue to be under pressure.

A brokerage researcher bluntly said that the current days of steel companies are not good. With the end of the month and the end of the year, bank remittance requirements will increase the financial pressure on steel companies, while poor sales and high inventory will allow steel companies to eliminate the lack of financial pressure.

Some listed companies have begun to prepare for the financial statements in response to the upcoming year, such as extending the depreciation period. Maanshan Iron and Steel Co., Ltd. announced that the company plans to adjust the depreciation period of equipment-type fixed assets from 10 years to 13 years from October 1, 2011. It is estimated that the depreciation of fixed assets in 2011 will be 318.19 million yuan, and the company's owner's equity and net profit will increase by 238.64 million yuan.

However, some analysts believe that large and medium-sized steel companies will not have major problems in cash flow. Although bank loans have contracted, steel prices should be positive as steel prices stabilize.

However, the tight capital chain of steel companies will have an adverse impact on the expansion project. The source pointed out that the current operating profit of steel enterprises could not provide financial support for new production capacity, which led to steel companies having to rely on trusts, issuing bonds and other means to obtain funds. In the future, these new projects will face serious financial tests.

Wang Yifang, chairman and general manager of Hebei Iron and Steel Group, said that during the “Twelfth Five-Year Plan” period, Hebei Iron & Steel and Group will not increase the production capacity by one ton, cultivate and develop diversified industries such as logistics and finance, and realize the competitiveness of the group from products to industries. The chain extends to form a new point of profit growth. Hebei Iron and Steel will invest 8.6 billion yuan to build a steel logistics market.

Market participants expect the steel industry to enter the industry consolidation phase next year. However, steel companies are burdened with thousands of people, and it is still a great test to achieve market-oriented exit.

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