BEIJING - A steel firm in the eastern Chinese province of Jiangxi has been declared insolvent and shut down after failing to pay its debts, adding to jitters in a sector struggling with overcapacity and weak prices, the China Business News reported on Wednesday.
China's steel mills have been producing at near record rates in recent months despite a downturn in demand and a long decline in prices due to a massive supply glut. Industry experts have warned that closures are inevitable.
China Business News said the chairman and general manager of Jiangxi Pingte Iron and Steel Co. Ltd., based in the city of Pingxiang, sought to abscond with 200 million yuan (S$41.4million) after the company's credit lines were suddenly cut off and the plant shut down. Local authorities are currently conducting an investigation.
The Chinese steel sector has been saddled with heavy overcapacity for years, but the problem worsened after 2009, when a stimulus-driven construction boom encouraged mills to go into debt in order to finance further expansion.
Pingte, established in 1998, has an annual steel production capacity of 800,000 tonnes, and in 2009 embarked on a project aimed at improving its product line, spending 180 million yuan to upgrade its steel rolling equipment. However, its losses have mounted over the last two years, the newspaper said.