Debts Pile Up Weighing On Steelmakers

　　The first sixmonths of 2014 were not easy for a slowing Chinese economy. For China's steelcompanies, times were even harder.

　　Over half of thelisted Chinese steel companies saw their debts approach alarming levels in theJanuary-June period, with steelmakers filing their half-year results to stockexchanges by the end of August.

　　Of all 33 listedsteelmakers, 18 firms posted a debt-to-asset ratio higher than 70 percent, withXinjiang-based Bayi Iron & Steel Co, Ltd was burdened with the highest debtratio at 86.46 percent, according to their financial statements.

　　"For steelcompanies, a debt-to-asset ratio higher than 70 percent means the firm isfacing a capital problem," said Zhang Lin, an analyst with lgmi.com, asteel information service website.

　　Zhang expected thedebt problem to worsen for steel companies as the sector tends to makesubstantial investments that usually takes a very long period to mature.

　　Even for the bestperforming steel companies, the debt-to-asset ratio remained above 60 percent,a level Zhang said underlines the hardship of the entire sector.

　　China currentlyhas 86 steel companies that produced 411.91 million tons of crude steel, 362.02million tons of pig iron and 552.25 million tons of rolled steel products inthe first half of the year, according to data by the China Iron and SteelAssociation (CISA).

　　Total debts of thesteel sector exceeded 3 trillion yuan ($486 billion) by the end of June, and 43percent of the total debts, or 1.3 trillion yuan, stemmed from bank loans, theCISA data showed.

　　Xu Xiangchun, asteel analyst for Mysteel.com, a steel market portal, said Chinese steelmakershad expanded too fast over the past few years but such expansion is mainlydriven by mounting debts borrowed from banks and other financing channels.

　　As steelmakers owemore, banks are more reluctant to make loans to the sector due to the highdebt-to-asset ratio, thus squeezing their liquidity, Xu said.

　　Early in July, theChina Banking Regulatory Commission warned banks to be careful about risks inlending to iron ore dealers, steel companies and other sectors experiencingovercapacity.

　　The ChinaInternational Steel Congress last month estimated the country's steel industrynow has an excess capacity between 180 million tons and 240 million tons.

　　Such overcapacitymeans steel companies like Bayi Iron & Steel Co, Ltd must compete with eachother with lower prices in order to survive the fierce competition.

　　Sitting on thehighest debt-to-asset ratio, Bayi attributed its loss of 719 million yuan inthe first half of the year to weaker demand from the property andinfrastructure construction sectors.

　　"The demandhas dwindled greatly and the steel market is flagging," the steel companysaid in its note to investors.

　　In theJanuary-June period, Chinese steel companies posted a combined profit of 2.27billion yuan, reversing a loss of 2.33 billion yuan in the first quarter,according to the CISA data.

　　But the profit isbrought by 4.32 billion yuan in investment revenues and 3.88 billion innon-operating income, rather than their loss-incurring core steelmakingbusiness.

　　Under suchpressure, Xu said, many steelmakers may have to cut or even suspend theirproduction to get through hard times.

　　"If theirmoney is draining, selling fixed-assets in exchange of operating liquidity isalso another option for steel companies, " Xu said.

　　(Source: Xinhua)