Chongqing Iron & Steel's 1 Billion Yuan Private Placement: The Financial Rescue Logic Behind It — Three Consecutive Years of Losses, Declining Production and Sales, and Strategic Passivity

Ask AI · Why does Chongqing Steel’s private placement appear passive amid industry downturn?

Blue Whale News, March 25 - On March 25, Chongqing Steel Co., Ltd. released the “2025 Annual A-Share Stock Issuance Prospectus (Draft) for Specific Targets,” intending to issue no more than 757,575,757 A shares to Huabao Investment, with a total fundraising amount not exceeding 1 billion yuan, all used to supplement working capital and repay bank loans; this issuance still requires approval from the Shanghai Stock Exchange and registration approval from the China Securities Regulatory Commission, and has already been approved by China Baowu and the Hong Kong Securities and Futures Commission for H-share cleansing exemption.

Raising 1 billion yuan is essentially a financial remedy in the context of three consecutive years of losses and declining production and sales.

Although this private placement is labeled as “supplementing working capital and repaying bank loans,” a closer examination of its background, motivations, and basis reveals that it is a financial remedy passively chosen by a regional steel enterprise that has suffered three consecutive years of losses, faced operational pressures, and experienced declines in both production and sales during a deep industry downturn, rather than a strategic proactive capital operation. Chongqing Steel is projected to incur a net loss of 2.5 to 2.8 billion yuan in 2025, continuing its loss streak that began in 2022, with commodity billet sales expected to drop to 7.5994 million tons in 2024.

In January 2025, the company announced an expected performance loss, estimating a net profit attributable to shareholders of the listed company between -2.8 billion and -2.5 billion yuan, with net profit after deducting non-recurring gains and losses also in the same loss range. This data is not an isolated case but continues the ongoing loss trend since 2022. Public information shows that in 2024, the company’s commodity billet sales volume was 7.5994 million tons, significantly lower than previous years. On the industry level, the national crude steel output in 2024 was 1.005 billion tons, down 1.37% year-on-year, and the steel price index CSPI’s annual average fell to 102.47 points, a decrease of 8.39% compared to 2023. Under the “high output, high costs, high exports, low demand, low prices, and low efficiency” pattern, Chongqing Steel, as a regional long-process steel mill located in the southwest and far from major consumption markets, has weak bargaining power, hindered cost transmission, and its profit margins are continuously squeezed.

More concerning is that the pricing mechanism of this private placement exhibits obvious pro-cyclical features. The issuance price was set at 90% of the average A-share trading price over the 20 trading days prior to the pricing benchmark date, ultimately determined to be 1.32 yuan per share. However, on March 12, 2026, the company conducted a block trade at a transaction price of 1.54 yuan per share, which was a 2.53% discount compared to the day’s closing price of 1.58 yuan. This means the private placement price was discounted by 15.13% relative to recent actual market transactions. Although regulators permit pricing according to rules, in the context of the company’s stock price lingering at a low level and market value shrinking continuously, delivering shares at a significant discount to related parties objectively dilutes the rights of existing small and medium shareholders, yet fails to secure a clear path for business improvement or capacity upgrade commitments. The prospectus makes no mention of new projects, technological renovations, or production line upgrades, nor does it set performance targets or evaluation mechanisms for fund use, merely stating “to supplement working capital and repay bank loans,” lacking verifiable input-output logic.

Chongqing Steel still relies on traditional blast furnace-converter long processes and has not disclosed substantial investments in low-carbon metallurgical demonstration projects.

From the industry policy perspective, the country is accelerating the promotion of steel industry concentration and green low-carbon transformation. The “Steel Industry Standard Conditions (2025 Edition)” explicitly requires ultra-low emission upgrades across the entire process by 2026, listing short-process steelmaking and hydrogen metallurgy as encouraged directions. However, Chongqing Steel remains mainly dependent on traditional blast furnace-converter long processes, with crude steel output in the first three quarters of 2025 decreasing by 2.89% year-on-year. Although the proportion of thick plates and hot-rolled products has increased, the process of raising specialty steel from 10% to 50% relies more on structural adjustments than breakthroughs in technical barriers. Its current 4100mm wide heavy plate and 1780mm hot-rolled thin plate production lines, while possessing some differentiation, have not formed an irreplaceable high-end supply advantage. Within the Baowu system, leading companies like Echeng Steel and Baosteel have already taken the lead in low-carbon metallurgical demonstration projects, while Chongqing Steel has yet to disclose similar substantial investments.

The termination of the merger with Xinguang Changlong exposes Chongqing Steel’s lack of strategic resolve and its limited ability to extend and integrate segments.

Additionally, the company’s governance structure also shows passive responses. In December 2025, the board approved the private placement plan, but as early as March 2023, it had initiated the absorption and merger of its wholly owned subsidiary Xinguang Changlong to reduce management costs; two years later, in May 2025, it unilaterally terminated this plan, citing that “Xinguang Changlong’s professional qualifications are beneficial for expanding supply chain value-added services.” Such repeated adjustments reveal a lack of strategic determination and reflect the company’s immature capacity for integration in logistics, warehousing, and multimodal transport. Amid ongoing losses in its core steel business, attempting to compensate through subsidiary qualifications remains a defensive measure rather than a proactive expansion based on clear industry logic.