Dongbei Special Steel Group Co Ltd is going to file for bankruptcy due to losses spurred by overproduction of steel. Its subsidiary, Fushun Special Steel Co Ltd., said that government intends to slim down the loaded metal sector.
The company's loss amounted to $865 million and has defaulted nine times.
Fushun is a subsidiary of Dongbei and made the announcement of the company's inability to restructure. There were 496.9 million shares of Fushun Special Steel, or 38.22 percent of its total shares, that were frozen at the Shanghai Stock Exchange.
Liu Xinwei, an analyst at chem99.com, a bulk commodity information and consultancy website, "It's rare for State-owned companies to go bankrupt. But, the government won't pay too much to bail it out."
Liu also said that manufacturers of special steel rarely lose. However, Dongbei was overstretched with projects in Dalian and this caused the loss.
"Last year, profits of Chinese steelmakers were generally quite good. The default of Dongbei Special Steel is mainly because it has raised too much debt," said Liu.
The government has been slimming down steel producing companies by merging companies and debt restructuring. The target is to reduce steel capacity to by 100 to 150 million metric tons in five years starting in 2016.
International experts criticized the overproduction of steel in China. The overproduction has forced prices to dive and is causing unfair global competition.
Lourenço Gonçalves, chairman, president, and chief executive of mining and natural resources company Cliffs Natural Resources, said that China has not done enough to address the problem.
"China has not been unfairly targeted. They are the perpetrator, they are the problem and they had a chance to discuss this within the OECD (Organization for Economic Co-operation and Development) and they elected not to participate . . . China has been walking away from a negotiated deal," he said.