China’s second largest real estate developer Evergrande Group is struggling to meet the interest payments on its debts, which amount to $300 billion, and has seen its share price plunge by 85 percent this year amid this uncertainty.
The group recently announced that it has actively engaged in discussions with potential investors in relation to the sales of interests in members of the group and other assets to ease the liquidity issues. Evergrande said that the month of September is typically when real estate companies in China record higher contract sales of properties. However, the ongoing negative media reports concerning the company have dampened the confidence of potential property purchasers in the group. The company said it expects a “significant continuing decline in contract sales in September, thereby resulting in the continuous deterioration of cash collection by the group, which would in turn place tremendous pressure on the group’s cash flow and liquidity”.
The fears of a default by Evergrande Group have led to big concerns over steel consumption in China up to the end of this year as it signals not only problems in the real estate industry, but also possible cuts in loans for construction. Market sources expect China’s rebar futures and spot prices may drop from tomorrow, when China will come back from its holiday.
The iron ore 62 percent futures price at Singapore Exchange has dropped from $100.76/mt on Friday to $92.3/mt - a 8.4 percent fall over two days. Such a sharp drop has been triggered by deepening concerns about a further reduction in demand in October-November and rising supply.
Market sources mostly believe that import billet and rebar prices may be impacted by the worsening sentiments in China. “The market is really terrible with iron ore tumbling and the problem with Evergrande in China. So offers from traders are lower,” a trader from Manila said in relation to the import billet market. An offer from a Russian billet supplier was heard at $695/mt CFR Manila early this week, lower than the previous level of $705-710/mt CFR. “I expect a sharp drop in billet prices because of this news,” another source said. But the pace of the price decline will be very dependent on the steel production cuts in China, which may support the continuation of billet imports.
In the import rebar market in Asia, prices have not increased much over the past weeks, unlike in the billet segment. But the recent news coming from China may negatively impact demand in Singapore and Hong Kong.