Northern China’s Haixin Iron and Steel, which has been idled since March because of financial difficulties, has finally begun bankruptcy proceedings after a local court ruled in favour of a request from its creditors. The fact that the company survived so long after its financial problems were widely revealed around a year ago, suggests the removal of excess Chinese steel capacity through bankruptcy may be a protracted process, Kallanish notes.

The Intermediate People’s Court in Yuncheng in Shanxi province, where Haixin is based, ruled that the 5 million tonne/year steelmaker would have to begin restructuring in order to pay off its four main creditors, according to China’s official Xinhua news agency on 17 November.

Haixin’s outstanding debts are already slightly over its existing assets, it adds. At Yuan 10.46 billion, they are also much higher than its previously reported debts to banks, which local media estimated at around Yuan 3bn in March. This could be explained by what has become a familiar practice of troubled steelmakers increasingly turning to shadow banking to sustain their operations, Kallanish notes.

Haixin built a 2.2m t/y hot strip mill in 2013, which was never commissioned and could be of interest to potential buyers, Kallanish notes. The plant also has six blast furnaces with 5.6m t/y of iron-making capacity, 6m t/y of steelmaking capacity and 2.6m t/y of construction longs capacity.

The local government of Yuncheng city had been reluctant to let the company go into bankruptcy because of potential unemployment. Wenxi county, where the plant is situated had a population of around 390,000 in 2009, of which Haixin employed around 10,000.

In order to satisfy its creditors, the bankrupt mill will likely need someone, who is interested in buying its assets. Hebei Jingye Group, which had been looking to increase sales in Shanxi province was said to be interested earlier in the year, as well as Hebei’s Delong Iron and Steel.