Thursday, September 27 09:34:01
China's biggest listed steelmaker Baosteel has suspended output at a 3 million tonnes-a-year plant, and 40 percent of the country's iron ore mines are standing idle as steel prices have crumpled on weak demand in the world's second-biggest economy. Baoshan Iron and Steel Co is one of the first major Chinese mills to publicly announce it is suspending production, but with China's economy cooling and banks curbing loans to an industry that racked up $400 billion of debt during recent boom years, more stoppages are expected.
In an attempt to kickstart the economy, Beijing this month approved some $150 billion worth of infrastructure projects, but there are doubts that demand in the world's largest steel producer will pick up soon.
"The government's infrastructure investment may only improve sentiment ... I don't expect a big lift in steel demand," Zhang Dianbo, assistant president of Baosteel, told reporters at an industry conference in Dalian. At the same event, Liu Xiaoliang, executive deputy secretary general of the Metallurgical Mines Association of China said some 40 percent of China's iron ore mines have suspended operations as a slump in prices means they are losing money. Liu predicted iron ore prices would stay between $90-$110 in the next two years.
As demand for steel has dropped, the price of iron ore - a key steelmaking ingredient - fell to 3-year lows below $87 a tonne earlier this month. Prices have since bounced back to above $100, but remain 30 percent off this year's peak. China's steel rebar futures have dropped by as much as 24 percent this year to lows of 3,206 yuan a tonne earlier this month, though the infrastructure stimulus has provided some bounce.
The world's largest iron ore producer, Brazil's Vale SA , on Thursday forecast prices of $100-$120 a tonne and said it was pushing ahead with its own mine expansion projects. Fourth-ranked Australia's Fortescue Metals Group this month slammed the brakes on plans to treble its iron ore capacity, cutting $1.6 billion in planned capital spending this year, and axing hundreds of jobs.
The Baosteel plant, in Shanghai's Luojing district, produces steel plate used in the construction industry and for making ships and oil rigs. The company, which bought the plant for 14 billion yuan ($2.22 billion) in 2008, said in a statement it had been losing money due to weak demand and high costs. It halted its first furnace in July last year, according to a report in the weekly Investor China. The second furnace, which was losing 100 million yuan a month, was suspended earlier this month, the paper said, citing a worker at the plant.
"With demand from shipbuilders so weak, other producers such as Angang Steel are also facing pressure," said Helen Lau, senior metals analyst at UOB-Kay Hian. She said further suspensions would depend on whether steelmakers could compensate losses from other profitable units. Lau said the Luojing plant was more costly to run because of its technology, with its furnaces using the Corex smelting process of gasifying non-coking coal to produce pig iron. A Baosteel source, who has worked at the plant, told Reuters the facility would eventually be shut as part of broader plans to relocate operations away from Shanghai. Chinese steelmakers, already battling over-capacity, have been struggling with razor-thin profits or losses since Beijing clamped down on the real estate sector, hitting steel demand.
Baosteel's first-half profit more than halved, excluding one-offs, and the company has forecast that steel prices will remain under pressure this year. Baosteel shares last traded up 0.4 percent on Thursday. The stock is down around 6 percent so far this year, in line with the broader Shanghai composite index . China's crude steel production fell 2 percent in mid-September to around 1.86 million tonnes a day. The China Iron & Steel Association (CISA), which is lobbying for tax cuts for iron ore miners to help them through the trough, predicted the country's steel production capacity would rise more than 4 percent this year to 900 million tonnes. China produces about 1 billion tonnes a year of iron ore and buys 60 percent of the steelmaking raw material traded globally. ( C) Reuters