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China’s construction under severe pressure from controlled steel output

The Evergrande crisis
is the constructor sector’s major blow

One of China’s largest residential property developers had their credit ratings reduced to CC by S&P Platts and Fitch Ratings. Essentially, Evergrande is neck-deep in debts and expected to default on payments.

A casualty of environmental initiatives?
China’s commitment to reduce carbon emissions by curbing steel outputs put the construction sector in chaos. Major banks in China were warned by the housing authority about Evergrande’s payment default. This caused an uproar among investors and homebuyers. The company is said to be currently wobbling between raising funds and hoping for a lifeline from Beijing.

Apart from S&P Platts, Fitch Ratings concurred that China’s second largest developer is likely to skip payment due in days. Fitch said RMB 572 billion ($88.8 billion) of Evergrande’s loans were held by banks and other financial institutions. However, banks may also have indirect exposure to the developer’s suppliers, who are owed RMB 667 billion for goods and services. “Smaller banks with higher exposure to Evergrande or to other vulnerable developers could face significant increases in non-performing loans (NPLs), depending on how any credit event involving Evergrande develops,” Fitch noted.

Perilous chain reaction ahead
The country’s seriousness in reducing steel output was proven by China Iron and Steel Association’s  statistics. It revealed member mills slowed crude steel output slightly to 2.0449 million t/d between 1 and 10 September 2021, as output curbs were maintained at the start of the peak autumn demand season.

The early September pace fell by 0.4pc from 21-31 August 2021, and down by 4.3pc from a year earlier. It was nearly as slow as the pace in early August when mills increased maintenance activities during the slow summer demand season. The drastic reduction unleashed a lethal blow on China’s peak season for steel consumption (September and October). Steel prices soared due to low supply, and inevitably put Australia on heightened alert as iron ore demand is expected to soften.


Marine Online News Team
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