China's Largest Steelmaking Province Shuts Furnaces on Power Supply Limits

Baoshan Iron & Steel Co. and other steelmakers surged after researcher Mysteel.com said Hebei province shut 57 plants, signaling smaller and less-efficient companies may be forced out of business.

Wuan city, the province’s second-largest producer with annual capacity of more than 10 million metric tons, cut power supplies for about 20 days starting Sept. 4, Mysteel.com said on its website today. The cuts are part of the government’s drive to hit power efficiency targets.

Baoshan jumped the most in nine months in Shanghai trading, leading steelmaker shares higher on speculation the closures will curb overcapacity and support prices. As much as 25 million tons of annual steel capacity may be suspended as local governments seek to meet power targets, Credit Suisse Group said. That’s about 3.6 percent of total capacity in the nation.

Production cuts “may spread into other regions, and the disruptions may be much bigger than market expectations,” said Luo Wei, a Shanghai-based steel analyst with China International Capital Corp. “It would obviously have bigger impact on smaller mills than bigger producers. It has significantly helped sentiment recovery of the market.”

Baoshan, China’s biggest publicly traded steelmaker, rose 7 percent to close at 6.98 yuan. Maanshan Iron & Steel Co. gained 10.1 percent to close at HK$4.57 in Hong Kong, and Angang Steel Co. advanced 6.6 percent to HK$12.54.

Hebei is the nation’s biggest-steelmaking province. China’s State Council is assessing 18 provinces to ensure they meet power efficiency targets by the end of this year. Mysteel’s customers include BHP Billiton Ltd., Rio Tinto Group, Vale SA, Nippon Steel Corp. and Posco.

Steel Prices

Tangshan, the largest steelmaking city of Hebei, is still evaluating power consumption at key manufacturers and may cut electricity supplies, Mysteel said.

The eastern province of Jiangsu will supply power to local steelmakers only from 12 p.m. to 8 a.m. through the end of this month, Mysteel said, without identifying mills that may be affected. Steelmakers in the Zhejiang province will receive power from 10 p.m. to 8 a.m. every day, the researcher said.

Steel prices in China, the biggest producer, gained in five of the past six trading days, rising a total 1.7 percent to 4,244 yuan ($625) a ton on Sept. 3, according to data compiled by Beijing Antaike Information Development Co. The January-delivery contract for reinforcing bar in Shanghai rose 5 percent from the previous settlement to 4,592 yuan a ton, the highest price since May 7, before ending the day at 4,545 yuan.

Steel output in China dropped by 3.9 percent to 51.7 million tons in July from a month ago, posting a five-month low. Slowing demand has led about 40 percent of steelmakers in the country to idle plants or put them on maintenance, the China Iron and Steel Association said Aug. 3.

--Helen Yuan, with assistance from Glenys Sim in Singapore. Editors: Tan Hwee Ann, Indranil Ghosh.

To contact the Bloomberg News staff on this story: Helen Yuan in Shanghai at hyuan@bloomberg.net

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