China steelmaker, miners cut output as slowdown bites

Thu Sep 27, 2012 5:55am EDT
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By Fayen Wong and Ruby Lian

SHANGHAI/DALIAN (Reuters) - China's steel market, the world's biggest, is feeling the pinch of a slowing economy that has sapped demand for new ships and construction work. Its largest listed steelmaker has halted output at a 3 million metric tons (3.3 million tons) -a-year plant, and over a third of the country's iron ore mines stand idle.

In an attempt to kickstart the economy, Beijing this month approved infrastructure projects worth around $160 billion, but there's no certainty the plans to build highways, ports and airport runways will significantly boost steel demand.

"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 on Thursday.

Meanwhile, China's big steel mills are hurting.

Baoshan Iron & Steel Co (600019.SS: Quote) is one of the first to announce it is suspending production. But with the world's second-largest economy cooling and banks curbing loans to an industry that racked up $400 billion of debt during recent boom years, more stoppages are expected.

Outside China, top iron ore miner Vale (VALE5.SA: Quote) said it was forging ahead with projects to expand production, and forecast output of its biggest revenue earner would rise to 320 million metric tons next year from 312 million metric tons this year.

Global miners Rio Tinto (RIO.AX: Quote) (RIO.L: Quote) and BHP Billiton (BHP.AX: Quote)(BLT.L: Quote) said they remained confident about China's long-term demand outlook, with BHP predicting iron ore demand there wouldn't peak until 2025.

But, for now, some 40 percent of China's iron ore mines have suspended operations as a price slump means they are losing money, Liu Xiaoliang, executive deputy secretary general of the Metallurgical Mines Association of China told the conference.   Continued...

A labourer walks past the gate of the headquarters of Baosteel Group Corp. in Shanghai, in this April 1, 2010 file photo. REUTERS/Stringer/Files