A number of private steel enterprises in China are under pressure

There are a number of private steel enterprises have shut down in the City of Tangshan, for example Songjeong Steel Company. Till today, there is nearly 15 million tons of steel production capacity has out of the market. Under the background of low price for steel products and also raw materials, the dilemma of Tangshan steel industry could be a microcosm of the entire industry in China. Under this market situation, the fate of the private steel enterprises are under greater pressure. Decrease productivity passively and internal re-organization has became the steel industry strategy taken by the enterprises. 

Reporters learnt that Tangshan Songjeong announced the shutdown of steel mills on the Nov 14th. This is the second steel mills which has the capacity over 500 tons per year announced the shutdown. Due to high debt and capital chain pressure, the Songjeong has to discontinue its operation. With the shutdown news spread, steel industry re-organization and integration is also gradually starting. In 2015 September, the bankrupt Haixin Iron and Steel now is taking over by Jianlong Group. Now the re-organized company is in full implementation of the restructuring plan. " In the current severe overcapacity situation, re-start the production line basically is a operating loss, we may give more consideration to hold up the cash flow first" Senior researcher Shangzheng Bao told reporters. Once stopped production lines, the pressure for re-star the production line is greater. Although keep the production line will create more losses, many steel enterprises is still struggling to maintain the cash flow of bank credit. " if now dis-continued, and so next year might never open it up, we are now still holding on" Liu told reporters. 

Although there are some small steel factories began to cut production quantity in Beijing & Tianjin area, but the actual impact of the industry on the overall production capacity is not obvious. Analyst Liu Yuehua told reporters that the daily production quantity can probably be reached from 520000 tons /day to 48 tons /day in the current area of Tangshan area. This is equivalent to an annual capacity reduction of 12 million tons. Compared to the original 156 million tons annual capacity, this reduction quantity is not obvious enough to influence the whole steel industry. Control capacity in the steel industry priority. " China has about 300 million tons of excess capacity, we need to cut and completely clearing the excess capacity as soon as possible." David Humphreys said, who worked in Rio Tinto as a economist before. As the same time, the government intent to adjust the energy production structure in the next five year. Therefore, there is no need to count on the policy level of aid interventions which means the small and medium sized private enterprises will suffer more than  state-owned enterprises. We believe the result of market choices will promote the industry's capacity clearing and final upgrade.

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