It is reported that Chinese metals companies, lynchpins in the global economy are warning that Beijing’s monetary tightening has gone too far, causing domestic customers to delay orders and raising the risk of payment default.
In one of the clearest signs yet of deteriorating sentiment, Baosteel China second-largest steel producer has told the Financial Times that its customers were pushing back scheduled deliveries due to declining economic growth and tightening credit.
The Chinese steel and base metals industry is the world largest, shaping global price trends for commodities from iron ore to aluminium and affecting large mining companies such as Vale of Brazil and London-listed Rio Tinto and BHP Billiton.
China has tightened monetary policy this year in an effort to fight inflation, and those measures have started to cut into demand as construction growth slows. Nonetheless, the country is still buying vast amounts of raw materials, with copper imports hitting a 16-month high last month and annual buying of corn heading to its highest level in 15 years.
China large industrial groups are increasingly voicing concerns over the impact that credit tightening is having on their customers, after a year in which Beijing has raised interest rates and bank reserve requirements. Chalco, China biggest aluminium maker said it was worried about payment defaults from credit-squeezed customers. It said “Because our downstream customers face the predicament of scarce capital, the company risks of payment collection are increasing. We must pay great attention to this.”
Wugang another top steel producer revealed in its quarterly results last Thursday that it had less cash on its balance sheet because of slower customer repayments. The concerns follow similar complaints from small- and medium-sized enterprises which say that they are facing bankruptcy because credit conditions are too tight.
China steel demand growth is expected to slow this year and analysts say that mills miscalculations led to a glut of steel inventories building up in September leading to a drop in steel prices during the past month. The price of rebar steel used in the construction industry to reinforce concrete fell last week at the Shanghai Futures Exchange to its lowest since July 2010 at CNY 3,838 per tonne although on Thursday it recovered some ground to close at CNY 4,039.
The falling steel prices prompted some small and medium sized mills in China to shut down in recent weeks, further cutting into iron ore prices and forcing some mining companies to renegotiate supply contracts with Chinese steelmakers.
(Sourced from www.ft.com)
