Baoshan Steel Halting Production at China Factory

Baoshan Steel Halts Production at China Factory as Demand Drops
Steel production in China, the world’s biggest producer of the metal, reached a seven-month low in August, according to Steel Market Intelligence. Photographer: Nelson Ching/Bloomberg

Baoshan Iron & Steel Co., China’s largest listed steelmaker, suspended production at a plant after demand fell for slabs used to make ships and bridges.

“A downturn in demand in the downstream slab market” prompted the stoppage, the company said in a statement to Shanghai’s stock exchange yesterday, without elaborating on when production may resume. Production was suspended “to avoid increasing our operating losses,” it said.

Steel demand has plunged as economic growth in China, the biggest consumer and producer of the metal, slowed to the weakest since 2009 as a result of the European debt crisis and a campaign to rein in the property market. Steel reinforcement-bar prices in China have fallen more than 15 percent from the high reached on April 12 and Australia cut estimates for Chinese iron ore demand for 2012 and 2013 this month.

“The bigger issue is not what this one mill represents, but at prices at this low level, all the mills are under pressure,” Kuni Chen, an analyst at CRT Capital Group LLC in Stamford, Connecticut, said by telephone. “I’d expect to see more production shuts, but this becomes a vicious cycle where production declines, then raw materials decline, and steel prices continue to decline.”

Baoshan Steel rose 0.7 percent to 4.57 yuan at the close in Shanghai today. The benchmark Shanghai Composite Index rose 2.6 percent.

Corex Plants

The plant where production is being halted is located in Luojing, China, about 35 kilometers (22 miles) north of Shanghai, the company said. It includes two money-losing Corex and steel-processing facilities with a combined capacity of 3 million metric tons annually, Meng Haibiao, a media official at parent Baosteel Group Corp. said by phone.

Corex technology enables manufacturers to make steel from iron-ore pellets and unprocessed or non-coking coal, which is at least 30 percent cheaper than regular coking coal. Baoshan will move the Corex plants out of Shanghai, Meng said, without elaborating.

Baosteel, which supplies half of China’s automobile steel, reported a 60 percent decline in first-half operating profit. Net income rose on the sale of its stainless-steel and specialty-steel units to its parent.

Hot-rolled steel coil, a benchmark product used in cars and appliances, dropped 9.1 percent this year to $629.17 a ton, according to data from Steel Business Briefing. Steel reinforcement-bar futures in Shanghai fell more than 20 percent in the first eight months of this year.

Contracting Manufacturing

A report today by the National Bureau of Statistics showed Chinese industrial companies’ profits fell 6.2 percent from a year earlier in August, after falling 5.4 percent in July. Last week, a preliminary reading of a Chinese purchasing managers’ index by HSBC Holdings Plc and Markit Economics signaled manufacturing may have contracted an 11th straight month in September.

Steel production in China, the world’s biggest producer of the metal, reached a seven-month low in August, according to Steel Market Intelligence.

“We would need to see cutback announcements similar to this from other larger producers who typically buy the bulk of their raw materials on a contract basis in order to say that we are beginning to see supply rationalization on a larger scale,” Andrew Cosgrove, an analyst at Bloomberg Industries, said in an e-mail.

ArcelorMittal, based in Luxembourg, China’s Hebei Iron & Steel Co. Ltd. and closely held Anshan Iron & Steel Group Corp. were the world’s three biggest steelmakers by production last year, according to data compiled by Bloomberg.

China Ore Imports

“China has more than 150 million tons of spare capacity, so reaching a meaningful cutback number is highly unlikely given that steel plants are large sources of employment,” Cosgrove said.

Australia’s Bureau of Resources and Energy Economics on Sept. 18 cut this year’s forecast for Chinese iron ore imports to 672 million tons from 699 million tons. BHP Billiton Ltd., the world’s biggest mining company, said the next day that the pace of demand from China has slowed by more than 50 percent.

— With assistance by Sonja Elmquist

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