China’s banks were cutting credit loans to steel traders because bad debt had increased sharply. Analysts expected the move would add to pressure on the steel industry, along with the current weak demand.

Steelmakers would have to increase stockpiles, leading to less cash flow and further depression of the already-low steel prices, market watchers said.

About 90% of China’s steelmakers sell products through steel traders. A report by Citibank showed Shanghai, a major steel trade centre in China, saw traders take out bank loans of up to RMB 180bn last year ($28.98bn), 30% of which were likely to end as bad debt. Citibank forecast China’s banking sector would cut loans to steel traders by at least 20 to 30%.

Thousands of Chinese steel traders were shut down by the end of last year after the banking regulators had taken action against those not paying off loans.

Source: China Metals e-mail