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A source close to the privately-owned Haixin Steel mill, located in Shanxi province, told Steel First it had suspended five blast furnaces due to huge losses, but said the mill was not bankrupt because it had “other investments” in different sectors.
The source did not disclose the size of the loan or how long the blast furnaces would be shut.
The Financial Times reported on Thursday March 13 that Haixin had defaulted on loans last week.
Other mills in Xuzhou and Jiangsu provinces have seen bank loans cut in the past week, according to the source.
The default at the Shanxi-based mill prompted a huge sell-off in the ferrous markets, analysts told Steel First.
The move drove down iron ore prices down by 11% in four days – from $116.44 on March 6 to $103.99 on March 10.
“It was a steel industry default and news that banks calling in loans to steel mills which has sent the panic in,” Standard Bank analyst Melinda Moore told Steel First.
China saw its first-ever corporate bond default last week, when solar cell producer Shanghai Chaori Solar Energy Science & Technology Co announced that it would default on an interest payment due on March 7.
The rebar contract on the Shanghai Futures Exchange fell to its daily limit on March 10 when the most-traded October contract closed at 3,221 yuan ($526) per tonne, down 114 yuan ($19) per tonne from its close on Friday.
China’s premiere Li Keqiang warned of further defaults in a speech on Thursday, saying that defaults were “unavoidable” as the government pushes through financial deregulation, according to press reports.