Nov. 28 (Bloomberg) -- Baosteel Group Corp., China’s biggest steelmaker, is facing its “most difficult” period since its founding 30 years ago as global economies grapple with a slowdown and credit crisis, an executive said.

Baosteel’s output, sales and profit has plunged, and the company should cut capital expenditure, General Manager He Wenbo said in the Shanghai-based company’s regular newsletter.

Baoshan Iron & Steel Co., the publicly traded unit, said last month it may incur a fourth-quarter loss as tumbling demand from automakers and builders and falling prices force it to write off inventories. Steel prices have dropped 40 percent since a June peak in China.

“We should adjust our production-sales strategy rapidly,” He said. “We also should reduce or adjust the fixed-asset and long-term investment scale of the group.”

Baoshan fell as much as 2.9 percent to 4.98 yuan in Shanghai, and traded at 5.08 yuan by the 11:30 a.m. break. The benchmark CSI 300 Index fell 1 percent.

Baosteel, the world’s fifth biggest mill by capacity, was formed in 1978 when Deng Xiaoping decided to build a steel plant on the coastal city of Shanghai to compete with Japan’s Nippon Steel Corp. It started production in 1985.

The company is building a 60 billion yuan ($8.8 billion) steel plant in Zhanjiang, Guangdong province, to increase its capacity by one third.

Unit Baoshan yesterday cut hot-rolled product prices by 18 percent to 3,242 yuan a metric ton for January delivery, following a 22 percent cut in cold-rolled prices last week for December delivery. The unit will keep the cold-rolled prices unchanged in January.

To contact the reporter for this story: Helen Yuan in Shanghai at hyuan@bloomberg.net

Last Updated: November 28, 2008 00:09 EST