Another fruitless trip has left Cao Jianmin's mood at rock bottom.

Cao Jianmin is the legal representative of Beijing Watery Environmental Protection Technology Co., Ltd. (hereinafter referred to as "Watery"). Due to the sharp downturn in the steel industry, his company not only struggles to sell products, but also finds it difficult to recover over 5 million yuan owed by steel mills. His company is currently pursuing nearly 700,000 yuan in debts from Chengde Iron and Steel Group (hereinafter referred to as "Chengsteel").

"The salesperson went there in early April and explained the situation to Chengsteel's payment department. Their response was that repayment this month is unlikely." Cao Jianmin said in an interview with a reporter from Yicai Daily on April 15.

Chengsteel is a subsidiary of Hebei Iron and Steel Group, China's largest steel enterprise. In the industry winter, even the largest steel companies are considering "cash is king." "The steel mills' poor performance in recent years has put enormous pressure on us."

Difficult Debt Collection

"We really can't hold on anymore. After all, steel mills have been our customers for many years, and we are very willing to maintain cooperation, but we have no other choice." Cao Jianmin said.

Watery is a company mainly engaged in water treatment equipment. Its filtration products have a nice name, called hydraulic robots. The company usually deals with various steel mills. Its cooperation with Chengsteel began more than a decade ago, and it currently supplies about a hundred sets of hydraulic robots to the latter.

Due to the sharp downturn in the steel industry, Watery's business has also been greatly affected. "In the better years before, the annual contract amount was over 10 million yuan. In recent years, it's not good. Last year, it might have been only about 2 million yuan." Cao Jianmin said that the steel mills' difficulties mean not only no new product orders, but also that past debts are now very difficult to recover.

Cao Jianmin told this newspaper that currently, more than a dozen steel companies owe money to his company, including Handan Iron and Steel, Chengsteel, Linfen Iron and Steel, Guangxi Wanxin Steel Plant, etc. "Now the total outstanding amount is 5 to 6 million yuan, and Chengde Steel owes us nearly 700,000 yuan."

Cao Jianmin's helplessness lies in the little time left, because several loans of Watery will mature in July this year. Due to the delayed payments from the steel mills, his two properties have now been fully mortgaged to the bank for 4.15 million yuan. In addition, there is over 1 million yuan owed to small loan companies, totaling more than 5 million yuan. "The bank interest is over 40,000 yuan per month, plus the small loan company's money, the fixed monthly interest payment is 100,000 yuan." Cao Jianmin said.

This also means that if payment is not made by July, Watery will face bankruptcy. "If the steel mills paid on time, we wouldn't be like this."

In early April this year, the salesperson of Watery who liaised with Chengsteel personally visited to demand payment. But Watery was not lucky. During this visit, Chengsteel's payment manager did not promise when the money would be paid.

Chengsteel's reply was "steel mills are all like this now, no money," Cao Jianmin said. "For them, this amount is small, but it concerns our company's survival."

This is actually not the first time Watery has demanded payment from the steel mill, but each time with little effect. "Steel mills usually pay some at the beginning of the year. If we keep asking, they might pay another 100,000 or 80,000 at the end of the year. We're used to it." Cao Jianmin said.

According to the payment manager, current funds are mainly used to maintain production, procurement, maintenance, etc. There is no extra money to pay other arrears. "We now buy only when necessary and as little as possible. It's not that we don't pay, but mainly that times are tough."

The repeated refusals from the steel mill, coupled with the painful experience of visiting to demand payment, have led Cao Jianmin, who comes from an environmental protection background, to start considering new options. "Now we are also trying to transform, wanting to join hands with a company in Nanjing to do joint operations in air purification, desulfurization, and denitrification." Cao Jianmin introduced.

Chengsteel Under Debt Pressure

"Suppliers basically all have arrears. Now there are people demanding payment every day, some by phone. Whenever possible, we pay a little." said the aforementioned payment manager of Chengsteel. Chengsteel's capital turnover has been slow in recent months and may improve in a few months.

Watery and Chengsteel had good cooperation before, and Chengsteel used to pay relatively promptly. But since the second half of 2008, Chengsteel's payment situation has become abnormal, even to the point of arrears.

The payment manager explained that last year the finance department directly managed the money and mainly paid 70% of the invoiced amount, owing the rest. "This year, our department manages the money and payments, but there isn't that much money."

Chengsteel originally expected to receive 2 billion yuan this month, but by the end of the month, only 300 million yuan had come in.

The shortage of funds is exactly the new challenge this steel mill faces: due to approaching loans from banks and other financial institutions, the large amount of unpaid bills from equipment suppliers is equally staggering.

According to Cao Jianmin, on the day Watery demanded payment, the relevant person in charge of Chengsteel was at the computer sorting out the accounts of suppliers from various places. In the long list of nearly a hundred suppliers, only 10 to 20 strong suppliers had their debts settled. "Some companies with red names on the list are given priority; they are basically the ones owed money." Cao Jianmin relayed.

In the eyes of a government official in Chengde, Chengsteel's situation is relatively better than other steel mills because its main business involves vanadium and titanium, and with its status as a state-owned enterprise, its operations are still relatively normal.

As of press time, the interview outline sent to Hebei Iron and Steel has still not received an official reply, and Chengsteel's specific debt situation is unknown. Chengsteel is currently a first-tier key subsidiary of Hebei Iron and Steel Group, and most of its assets are already in the listed company Hebei Iron and Steel. According to the financial report of Hebei Iron and Steel, the company's debt-to-asset ratio last year was 67%, which is comparable to the average debt-to-asset ratio of the steel industry.

According to Hebei Iron and Steel's first-quarter performance forecast, the company expects a 265%~288% increase in first-quarter performance, with a profit of 160 million to 170 million yuan. However, behind the surge in performance is the boost from extending the depreciation period of fixed assets, which increases net profit by 1.5 billion yuan for the year.

In the view of Liu Qiuping, a researcher at Guotai Junan Futures, the difficulty in repayment by Chengsteel and even Hebei Iron and Steel is closely related to the industry situation: steel companies were losing money in January and February this year, slightly profitable in late March, and April is also okay. "For two-thirds of the first quarter, the industry was losing money, and these few months contributed no profit. Hebei Iron and Steel is in the same situation."

Currently, the average debt-to-asset ratio of the steel industry is trending upward year by year. Cheng Xubao, head of the Zhonglian Steel Plant Group, believes that in 2013, several steel mills were forced to suspend production due to excessive debt and broken capital chains, and this situation will continue for a long time in the future. "Stricter environmental protection and tighter loans will both worsen the 'winter period' of the steel industry."