China Steel Output Cut as Prices Fall and Inventories Rise

Hebei Iron & Steel Group (000709), China’s biggest steelmaker, joined domestic rivals in halting plants, responding to price declines amid high inventories, research company Custeel.com said.

Hebei Steel’s Chengde unit will halt a 2,500 cubic-meter furnace for maintenance for 21 days starting from June 10, which it’s estimated would reduce its iron output by 120,000 metric tons, Custeel said on its website today. Nationwide, 10 blast furnaces have been shut or suspended for checks, which would cut iron output by 1.11 million tons, equating to 1 million tons of crude steel, the researcher said.

Bian Aiguo, a news officer with Hebei Steel, said he isn’t aware of the plant suspension. Three calls to Liu Yi, head of the company’s production department, went unanswered.

Steel reinforcement-bar futures in Shanghai fell to the lowest level in more than eight months yesterday as production rises faster than consumption. Steel output in China gained 8.4 percent in the first four months of this year to 258.2 million tons from a year ago, according to the National Bureau of Statistics. About 54 percent of that extra steel has become inventory sitting in warehouses, Wang Xiaoqi, vice chairman of China Iron & Steel Association, said this week.

It’s unusual to shut plants for maintenance at this time of year, Hu Yanping, Beijing-based chief analyst with Custeel.com, said by phone.

“We take it as production adjustments in reaction to the market conditions. More mills are expected to join the output cuts over the next month as prices continue falling,” Hu said.

Steel futures in Shanghai yesterday dropped to as low as 3,420 yuan a ton, the weakest level since Sept. 10. They traded at 3,427 yuan a ton at 11:30 a.m. local time today.

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

To contact the editor responsible for this story: Jason Rogers at jrogers73@bloomberg.net

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