Chinese physical and futures steel prices have continued sliding on weak demand and overproduction. Reports that Sinosteel could default on a payment this Tuesday did nothing to calm the market despite the fact that a default is actually unlikely, Kallanish notes.

The January 2016 rebar contract on the Shanghai Futures Exchange closed down CNY 5/tonne at CNY 1,830/t ($289/t), while the same contract for hot rolled coil closed down CNY 8/t at CNY 1,870/t.

Physical prices have also continued to trend downwards. Spot 20mm HRB400 rebar prices in Shanghai were down around CNY 35/t over the week at CNY 1,900-1,940/t on Friday, while 5.5mm Q235B HRC was down just CNY 10/t at CNY 1,870-1,900/t.

Reports that Hong Kong-based Sinosteel Trading Company could default on a CNY 2 billion payment on Tuesday appear to be exaggerated. The debt actually matures in 2017 but holder have put options to sell the debt to parent Sinosteel Corporation on 20 October. The state-owned trading house has reportedly written to bondholders urging them not to exercise their put options.

Sinosteel itself has long been the centre of reports of deferred payments and other financial problems. A resolution has so far always been found before the company come to crisis. As a centrally state-owned enterprise, Sinosteel is an enactor of policy as well as a commercial enterprise. It has been involved in a number of politically-motivated investments, including in Kazakhstan this year. It is also planning to buy Pakistan Steel Mills despite that steelworks perennial problems.

Beijing has been more willing to allow defaults to weed out weak Chinese companies. However, it is a big leap from that to assuming it will allow a default at a strategic centrally-owned company.