China Steel Industry Facing Harshest Ever Operating Environment

China’s steel industry, the world’s biggest, is facing the harshest operating environment ever, Baoshan Iron & Steel Co. (600019) said, as a credit squeeze and overcapacity weighs on the sector and economic growth slows.

“Some less-competitive mills will find it hard to continue,” He Wenbo, chairman of China’s biggest publicly-traded steelmaker, said today in a web cast. The environment is “harsher than any years in the past,” he said.

The comments underscore the challenges facing China’s steel sector, producer of about half the world’s steel. The nation’s major steelmakers had a combined loss of 2.3 billion yuan ($367 million) in the first quarter, according to an industry group. At the same time, data this month showed the Chinese economy expanded 7.4 percent in the first three months of the year, the weakest pace in six quarters.

China isn’t likely to “initiate massive stimulus policies on investment in the second quarter, but may have a series of fine-tunes to ensure economic steadiness,” He said. The government may push forward major infrastructure projects including railways and may implement some “loosening’ of monetary policy to prevent a further slowdown, the chairman said.

Baoshan’s He forecast economic growth of 7.4 percent in the first half. China has set an annual growth target of 7.5 percent for this year.

Industry Overcapacity

Shanghai-based Baoshan, as the nation’s most profitable steel company, yesterday reported a 7 percent decline in first-quarter profit to 1.51 billion yuan.

An industry overcapacity may worsen in next two to three years as steel production capacity is still growing, Baoshan General Manager Dai Zhihao said in the same web cast.

Steel output may rise 3.8 percent to 809 million metric tons this year in China, outpacing demand growth of 3.3 percent to 752 million tons, Baoshan’s He said, restating an earlier forecast.

Prices of iron ore, a major steelmaking ingredient, may drop to $100 a ton as the supply-demand status has changed, general manager Dai said. Ore with 62 percent content delivered to Tianjin fell to $108.30 a dry ton yesterday, the lowest level since March 12, according to The Steel Index Ltd.

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

To contact the editors responsible for this story: Jason Rogers at jrogers73@bloomberg.net Madelene Pearson, Keith Gosman

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