On July 21, rumors began circulating that the central bank had issued an internal notice prohibiting the issuance of new securities—such as short-term notes, medium-term bonds, convertible bonds, and corporate bonds—for nearly 10 industries suffering from overcapacity, including steel, cement, coal, chemical fiber, electrolytic aluminum, and iron production. The rumor also suggested that companies willing to voluntarily reduce or halt production might receive interest relief or assistance in converting their operations.
According to Zhu Xian, an analyst at Steel Union Information, steel companies primarily rely on stock markets, banks, and bond issuances for funding. In recent years, bond issuance by steel firms has been substantial. If the rumor is true, it could significantly impact the sector.
Data from Steel Union Information shows that in the first half of this year, 36 steel companies planned to issue short-term notes, medium-term bonds, stocks, and corporate bonds. If all were successfully issued, the total amount would reach approximately 83.8 billion yuan.
As of the end of 2012, the total liabilities of large and medium-sized Chinese steel enterprises reached 2.83 trillion yuan—seven times higher than in 2001—with a debt-to-asset ratio of 68.3%. This marked a steady increase from 49.65% in 2001 and 60.09% in 2008.
In 2011, 37 steel companies in the overcapacity sectors raised a total of 16.835 billion yuan through various financing instruments. By 2012, the number of steel companies issuing or planning to issue bonds had risen to 62, with a projected total of 172.92 billion yuan. These funds were typically used for repaying loans, settling debts, purchasing raw materials, and supporting working capital.
The steel industry in 2012 was described by the China Iron and Steel Association as "the most difficult year since the 21st century." According to data from the association, six months of the year saw losses across the sector, with 23 companies reporting losses—a 15-company increase compared to the previous year. Total losses amounted to 28.924 billion yuan, a 7.39-fold increase from the prior year.
Wang Jianhua, editor-in-chief of My Steel, believes that if the rumor is true, it could lead to the elimination of some steel companies, but it would ultimately benefit the industry by reducing overcapacity.
Zhu Xian also pointed out that if the rumors are accurate, the impact on steel prices could be positive, helping to curb overexpansion and eliminate outdated production capacity. However, he emphasized that the actual effect would depend on how the policy is implemented.
Notably, the rumor claims the central bank issued the notice in early July, but enforcement at the local level appears limited.
According to Steel Union’s statistics, from July 1 to July 22 this year, three steel companies—Xingtai Steel Co., Ltd., Panzhihua Iron & Steel Group Co., Ltd., and Anshan Iron and Steel Group Co., Ltd.—were planning to issue short-term notes, ranging from 400 million yuan to 4.5 billion yuan. However, Xingtai Steel recently announced that its planned 400 million yuan short-term note issuance on July 17 was postponed due to insufficient subscription amid market volatility.
As of 5 p.m. on July 22, the central bank had not officially responded to the rumors.
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